Open Banking: Data-Related Risks and Governance Mechanisms
16. 04. 2021
Open Banking, or Consumer-Directed Finance, revolves around FinTech developers leveraging open APIs to gain access to customer data residing in any financial institution. The concept allows all companies offering banking services to augment their offerings, improve customer engagement, and create new channels for digital revenue.
Adoption of Open Banking is well under way in many countries and is already operational in the United Kingdom under the Open Banking Standard. The European Union had passed the Second Payment Services Directive (PSD2) in 2015, which will be implemented by the end of 2020 to address security concerns. Australia, Japan, and Brazil, too, have developed standards similar to the PSD2 and are making progress on their implementation. In the US, Open Banking is an industry-driven initiative, and although the Treasury has issued recommendations, there are no standards or regulations in place yet.
The Government of Canada has created an Advisory Committee on Open Banking, which is looking at addressing potential risks that Open Banking may pose to consumer protection, privacy and confidentiality, financial crime, and financial stability. Meanwhile, the Digital ID and Authentication Council of Canada (DIACC) is working on drafting a Pan-Canadian Trust Framework for FSI organizations to safely authorize access to and exchange sensitive data with each other and citizens.
Canadian banks are already working towards open banking adoption and 6 major banks have created a blockchain-based digital entity service to pave the way for an open banking system.
Open Banking holds great promise for consumers, giving them greater flexibility and transparency when it comes to financial solutions. It will make switching banks and comparing their accounts at different financial institutions easier and will give consumers the freedom to find better mortgage rates and alternative sources of financing. It will also allow consumers to secure a loan with one institution and refinance their debt with another, encouraging financial institutions to be more competitive.
Moreover, consumers will be able to get faster credit decisioning and will be able to review their overall financial position, across various organizations, to get a more holistic view of their spends, savings and debt.
Banks will be able to leverage Open Banking to see their customers’ complete financial positions, which will allow for better credit and NBO decisioning. In addition, banks will be able to generate better returns on marketing campaigns by more accurate targeting. Overall, Open Banking will likely be a motivator for innovation and could spur significant growth for banks that can leverage the open data to its full potential.
Open Banking will completely change the quantum of data available for banking decisions, and without appropriate use of this data, financial institutions may run the risk of getting left behind as the banking ecosystem undergoes reform.
Adastra’s experts can help banks extract the maximum value from the new data coming their way, while mitigating potential risks. Our Azure Service Bus based inter-entity integration (API) framework comes with PCI DSS-level secure data persistency, a data quality firewall and processes for mastering of customer data.
Our solution includes capabilities for:
Adastra can help organizations develop an open banking architecture with in-built API security, customer authentication, consent management and capability for third-party onboarding. The platform will be integrated with the external banking system and the user stores. Our solution will allow for analytics and insights and have proper fraud detection solutions, in accordance with existing standards.
We also focus strongly on customer experience, and the solution will be easy to navigate through, while also having the required security profiles in place, so that your organization’s data remains safe and allows for all banking and financial use cases.
Interested in learning more about Open Banking? Schedule a free consultation with our experts for more information about our solutions.
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