Open banking is not just a trend that will pass, in fact, it is the opposite: now that companies and users have begun using open banking, it is unlikely they will return to the previous way of life as the ease and accessibility of open banking means wait times for approval are completely cut out. However, there are still some concerns around the security of open banking due to the sensitive information involved.
Leon Muis is the CBO at YTS. There is still a long way to go before open banking is fully adopted, however, Muis suggests better education and support around how data is stored and the measures in place to safeguard client data will go a long way into disproving the fake myths of open banking you can find online:
In the UK, there are currently almost four million people using some form of open banking service, rising by over one million users in the past year. This growth signifies the increasing shift towards digital services across Europe, but barriers remain in the way of adoption.
To tackle these barriers, we spoke to the other side of the coin, the digital service providers themselves, to get their take on what the future holds for open banking. Our research, comprising a survey of 800 business leaders in various financial services industries, in both the UK and the Netherlands, showed that the businesses considering offering open banking have questions and uncertainties around data security, data sharing, and the open banking model.
In fact, for most, these concerns were stopping them from bringing open banking into their business, and a significant portion wanted better education and training (42%) and increased guidance from regulators (42%) to get around these fears.
But how do we go about educating businesses, and in turn their customers, about the inherent security measures which underpin open banking, and make it one of the most secure digital technologies currently transforming the way business is done?
The first challenge is increasing awareness of the technology itself. As a relatively new technology with mostly unexplored potential, many businesses and consumers alike are still unaware of the potential benefits. Organisations that take time to research the market, talk to vendors, and educate their customers about the benefits will have an advantage. However, as part of this, it is essential that the industry ensures the information is readily available and can be accessed by the customers it’s seeking to serve.
Once businesses grasp how the technology works, the second question usually centres around data security. It is vital that customers understand that open banking is based entirely on consent – the customer is in complete control of their data and who they share it with. There is always a consent or authorisation step before any connection and transfer of data occurs between their bank and a registered third-party provider (TPP).
It is important to note here that open banking is a highly regulated field. To operate any open banking service, you must be fully licensed either by the FCA in the UK or the DNB in the Netherlands, for example.
Building industry connections
Businesses often believe that to utilise the benefits of open banking, they need to build the technology themselves and therefore take responsibility for the large amounts of data that it uses. However, by partnering with an Application Programme Interface (API) provider, such as YTS, this burden can be passed on, and in doing do the risk of using such technology is instantly removed.
Beyond data security, there are several important advantages to partnering with an established player, such as no longer needing to create an ongoing and unnecessary technical workload to maintaining the connections. This also means that the resources you would have invested into building your own connections can then be deployed on building infrastructure or solutions that do not already exist on the market, giving you an extra competitive edge.
Moving into the future of finance
Adoption of open banking has only just scratched the surface. In order to improve adoption rates, more must be done to explore new methods and mechanisms that promote business and customer trust in open banking.
This can be achieved through better education and support around how data is stored and the measures in place to safeguard client data, and must be done so proactively and in the face of false information already out in the public domain.
This in time should help foster a more open and collaborative regulatory environment that is nurturing and informative. It will also encourage greater adoption among providers by addressing some of the misconceptions surrounding the framework that act as a barrier to take up.
It is through industry and regulatory collaboration and greater education that the barriers to open banking adoption can be addressed and the model can realise its full potential.