Open Banking API: Benefits and Security Risks

Open Banking API

Open banking is a technology that moves the fintech sector forward.

It ensures interaction between financial market participants and other industries. Every day, more and more banks, insurance providers, start-ups, and fintech organizations employ finance software development services and innovative digital solutions. They create a higher competition rate in pursuit of customers' attention and trust.

Geniusee is a reliable tech provider that ensures high-quality fintech services and deep expertise in open banking. We create innovative products and solutions to help our clients stand out among competitors and engage new customers.

In this article Geniusee experts prepared information about the open banking API (Application Programming Interface) to indicate some important points and share our valuable expertise with you.

What Is An Open Banking API?

What Is An Open Banking API

Open banking is an innovative solution that enables you to create your own ecosystem. Banks are able to open access to data and their own services to Third Party Providers (TPP) companies. So, you can use the data to analyze and distribute products. Application Programming Interfaces (APIs), which enable TPP programs to share data with bank applications, play a key role in open banking.

The main objective is to promote innovation in digital banking, foster the creation of new financial applications, and enhance both consumer and commercial services.

How did open banking come into being? The UK Competition and Markets Authority (CMA) introduced Open Banking in 2018, which directed banks to expose their applications to TPP. The European Union revised the Payment Services Directive (PSD2) in the same year for the same objective, and new security guidelines were included for accessing payment accounts and conducting financial transactions.

A typical use of the Open Banking API is to collect data from various bank accounts and aggregate it into a single view provided by the TPP application. Payment Initiation Service Providers (PISPs) establish a connection to a client's bank account and launch payments on the client's behalf. Account Information Service Providers (AISPs) connect to a customer's bank account to provide financial services such as money management.

Benefits Of Open Banking APIs

Benefits Of Open Banking APIs

1. Faster Innovation

IT departments of established banks are typically slower to innovate and create new apps and functionality than the fintech industry. For digital banks, APIs present a huge potential since they let them connect to ready-to-use solutions and quickly integrate new features and products.

By connecting different services through the API, you may quickly build your own solution that will operate with the available tools and functionalities.

3. Detailed Information About Clients.

In order to acquire insights into client financial trends and patterns, fintech companies can access bank customer data.

Since you may integrate creative solutions that are intended to speed up numerous procedures or make them more efficient through the API, banks and fintech businesses can offer a more positive customer experience or improve the quality of service.

4. Personalized offers

Fintech companies may boost client engagement by providing individualized services and recommendations utilizing financial trends and consumer behavior patterns. APIs might affect banking development.

You can use financial information safely and conveniently with their assistance as they will integrate banks, financial institutions, service providers, and consumers. This will enable financial institutions to provide a potentially larger consumer base with a wider variety of products and services.

Security Risks Of Open Banking APIs

You should consider all the risks associated with opening banking applications for TPPs and prioritize fraud prevention. Frederik Mennes, head of OneSpan's Security Competence Center, clearly categorized these risks into three types.

  1. First, Financial institutions open up their systems and communicate consumer data with TPPs. Therefore, it is the financial institution's responsibility to ensure they only work with trusted third-party providers.
  2. Second, when users access a bank account through TPP-provided applications, they must be appropriately authenticated to avoid unauthorized access. Additional authentication, such as Strong Client Authentication (SCA), may be necessary.
  3. Third, the bank's IT infrastructure now actually contains the IT infrastructure of the TPP. Thus, if there is a data leak or other compromise at the TPP, the bank may also suffer.

In the FinTech world, open banking is still a relatively new concept. However, financial organizations are ready to take the next step beyond open banking, known as open finance. Initiatives related to open banking mostly concern payment accounts.

We do not see any reasons why the new open banking services, tools, and advantages cannot be used with other types of financial accounts, such as mortgages, investments, pensions, and insurance. Feel free to contact Geniusee and bring your FinTech ideas to life with our developers.

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