Open banking has been a transformative shift in the financial sector, but is it safe? In this article, we’ll explore why the answer to that question is ‘yes’. If you’d like to learn more about open banking and how it works, make sure to read our comprehensive explainer on open banking. 

Is Open Banking Safe For Businesses? 

For businesses, open banking offers a secure framework with multiple layers of protection:

• Robust API security measures ensure data integrity during transmission

• Strong Customer Authentication (SCA) protocols verify user identities

• Real-time anti-money laundering (AML) and Know Your Customer (KYC) processes mitigate fraud risks.

• Encryption protocols safeguard sensitive financial information both in transit and at rest.

• Regulatory compliance requirements ensure that only vetted and approved providers can access open banking services.

• Transaction Risk Analysis (TRA) evaluates each transaction in real-time, triggering additional security measures for high-risk activities.

• Regular security audits and penetration testing identify and address potential vulnerabilities.

These comprehensive security measures collectively create a robust ecosystem that protects businesses' financial data and transactions.

Is Open Banking Safe For Consumers? 

Consumers benefit from similar security features, with additional protections tailored to individual users:

• Consent-based access puts consumers in control of their data sharing.

• Multi-factor authentication adds an extra layer of security to account access.

• Data minimization principles ensure only necessary information is shared.

• Tokenization reduces the need to share sensitive login credential.

• There is end-to-end encryption of all transactions.

• There is clear transparency about data usage and purpose.

• You have the ability to revoke access to third-party providers at any time. 

These measures empower consumers with enhanced control over their financial data while maintaining high security standards.

Open Banking Security

Open banking's security framework is built on several key pillars:

Strong Customer Authentication (SCA)

SCA is a multi-factor authentication method combining at least two elements: something the user knows, has, or is. This significantly reduces the risk of unauthorized access.

API Security

Secure APIs form the backbone of open banking, featuring encryption, digital certificates, and authenticated access management controls to protect data during transmission and processing.

Data Minimisation and Purpose Limitation

These principles ensure that only necessary data is collected and used solely for its intended purpose, reducing the risk of data misuse or exposure.

Encryption

Advanced encryption techniques protect data both in transit and at rest, rendering it unreadable to unauthorized parties even in the event of a breach.

Explicit Consent

Users must provide clear, informed consent before any data sharing occurs, ensuring transparency and user control over their financial information.

Risks of Open Banking

While open banking is designed with security in mind, it's important to acknowledge potential risks:

Risk of Data Breaches

The increased number of access points in open banking expands the potential attack surface for cybercriminals. However, robust security measures and encryption protocols significantly mitigate this risk.

Risk of Third-Party Access

Granting access to third-party providers introduces an element of risk outside the bank's direct control. Stringent vetting processes and regulatory oversight help manage this risk effectively.

FAQs

Is Open Banking Safe?

Yes, open banking is generally considered safe. It employs advanced security measures, strict regulations, and user consent protocols to protect financial data and transactions.

What Information Will Open Banking Companies Have Access To?

Open banking companies can access the specific financial information you consent to share, such as account balances and transaction history. They cannot access data beyond what you explicitly authorize.

What Is Strong Customer Authentication?

Strong Customer Authentication is a security protocol that requires at least two independent authentication factors to verify a user's identity, significantly enhancing the security of financial transactions.

Sources: 

1. The Payments Association 

2. OneSafe

Sources last checked on: 21 January 2025