The Open Platform Banking is set to usher in customer-centric business models and banks’ current product-centric mindset might take a backseat if they don’t act fast.
Studies have shown that one in five US consumers find Open Banking valuable with interest much higher among millennials and Gen Z. Allured by the flexibility and transparency, they are willing to connect or export their financial data to Third-Party Providers (TPP) like – fintech firms and start-ups, neo-banks, payment service providers, tech and retail companies, and licensed merchants.
What are the modern banking problems that paved the way for Open Banking Platform?
Traditionally, end-users were more connected with the physical presence of banks. However, with the advent of digitalization and the subsequent slew of banking sector disruptions like – online banking, mobile banking, neo-banking, etc., end-users became more concerned about:
- Secure online financial transactions
- Transparency w.r.t. how your banking data is handled
- How much control you have over who can access the data
- Solutions that simplify e-commerce (B2C), particularly in the wake of the pandemic
- B2B digital payment solutions
- Real-time financial tracking tools
- Personal Finance Management tools
- Specific debt monitoring tools
This created an opportunity for Third-Party Providers (TPP) to innovate and bridge the gap between banks and end-users. Thus, paving the way for disruptive banking technologies like – Open Banking, also known as Open Bank Data.
Democracy knocks on banks’ door
The European Union pieced together the Payments Services Directive 2 (PSD2) to boost the Open Banking System in 2018 under which, financial services organizations in the 27-member nations are required to give consumers control over their financial data.
In the United States, an increasing demand for portability of personal data as part of Open Banking Technology has prompted the Consumer Financial Protection Bureau (CFPB) and federal regulators to consider mandating Open Banking Solutions like PSD2.
The Biden administration threw its weight behind Open Banking Platform with the July 9, 2021, executive order – Promoting Competition in the American Economy. Yes, on the policy front, Open Banking is set to get its due right sooner if Biden administration’s order is any indication. It is now the turn of the banks to scout for new pastures of growth with Open Banking Technology.
How can banks become pioneers in a disruptive, data-driven financial world?
Banks and financial institutions will have to look at cutting-edge technologies to increase the existing revenue streams and to find new sources. Open Banking is a step in this direction.
Succinctly put, banks can enable third-party financial service providers, open but regulated access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions via Application Programming Interfaces (APIs).
Open Banking facilitates the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. It is thus, an innovative disruption poised to rearchitect the banking industry.
Multi-directional data flow
Banks will have to expand their APIs beyond single direction connections to provide new financial services and products in a fast, elegant, and user-friendly manner; while at the same time moving on to a more connected, data-driven financial world.
By upgrading and building new technologies and tools for Open Banking, banks can align various siloed departments of the organization to increase customer convenience, loyalty, and referrals.
The Open Banking Services APIs can help banks optimally leverage their data internally and personalize customer services such as front-end applications.
Open Banking System facilitates compliance practices that are equally benefitting for both the entities – banks and TPPs. Higher standards of compliance imply the elimination of unnecessary costs like fees and fines, thus, promoting profitability.
Why must Banks partner with Fintechs in the disruptive financial trend called Open Banking Technology?
The distinctive lines between industries are blurring rapidly. Today, we have non-financial companies leveraging value from fintechs to create newer customer-oriented products. For example – an Italy-based utility company – Enel, is collaborating with the Swedish fintech – Tink to launch an account aggregation solution, and with SIA to create mobile banking solutions.
Application Modernization for ISO 20022 Adoption
With this kind of competition, what must be the next logical step for banks to benefit from the estimated $400+ billion Open Banking Economy?
- Banks will have to build a more robust and seamless system to provide newer services and products to their customers.
- This requires banks to foster a culture of data-sharing through advanced tools and analytics like artificial intelligence (AI) and machine learning (ML).
- However, unlike fintechs that have a very dynamic tech-driven business model, banks are not built to facilitate a similar agile technological ecosystem.
- As fintechs are armed with a plethora of tools and applications, banks can set up new platforms which can act as a means to create synergies by building new customer experiences.
- Hence, it is prudent to say that banks stand a good chance of competing in the revolutionary Open Data financial services ecosystem by collaborating with fintechs.
- This will empower them to leverage the strengths of fintechs to facilitate data-driven decision-making, innovation of customer-relevant products, and maximize customer growth.
What is holding back the tech leaders of banks from seamlessly adopting Open Banking Solutions?
It is encouraging to notice a larger percentage of banks waking up to the potential of the Open Banking System.
However, it is also visibly clear, how tech leaders of banks must navigate the dilemma of integrating the innovative technology with their core banking systems. To be more specific and in simpler words, tech leaders of banks must battle the following roadblocks:
- Integrating with legacy technology.
- Rearchitecting their corporate culture.
- Attracting the right talent to design and implement the Open Banking Software and APIs.
- Timing the shift in technological upgrades and adoptions.
- Deliberating on ‘which’ and ‘how much’ of the confidential data needs to be exposed to TPPs.
- Longevity or relevance of the APIs invested in.
- Budget considerations for tech transformations, especially for small and medium-sized banks.
- Lastly, the level of user-friendliness of the APIs; the less technical they look, the more value it would add to its functionality.
How do APIs facilitate seamless adoption of Open Platform Banking?
Remember, facilitation of speed and convenience by leveraging high-tech tools is a more attention-intensive enterprise that Fintechs and other TPPs are experts at. The question to be asked is – if it is prudent for banks to devote valuable resources for the same alongside managing the conventional banking operations for an incredible number of customers?
Hence, collaborating with TPPs with the help of a competent API provider will enable banks to retain customers by becoming an indispensable part of the big-tech revolution.
Also, when you say – Open Bank Data, it does NOT mean that banks are selling out their data in an unregulated manner.
As part of the security and control of data, banks need to keep a tab on third-party relations using access control, monitoring, and authentication through the API. It is important to know which APIs to expose and to whom.
Putting in place services tailored to the customer’s needs with the vast array of API functionalities will nudge existing customers to stay with the bank and will also bring in a fresh batch of customers. But what will truly entice them are the reduced time and automated operations.
Deloitte summed it up best when the global professional services network wrote: “The bank of the future will not succeed without a smart, cost-effective (customer) acquisition strategy, whilst also delivering trust and awareness.”
Banks can embrace Digital Transformation with Techwave’s API
With its strong fundamentals, Techwave (established in 2004) has become the ideal choice of many a bank in their digital metamorphosis.
Techwave’s proven track record has brought in new value for tech leaders in banks who are looking to maximizing the business potential for their organizations.
With intelligent automation, industrialized assets, specialized skills, and global delivery capabilities, Techwave has been accelerating the adoption of Open Banking. Our scalable and interoperable applications are helping Third-Party Providers and banks switch over their core applications and interfaces.
When helping banks to put together a seamless customer experience, Techwave ensures that internal challenges are addressed to prevent digital transformation negativity. By developing scalable, robust, and low-cost maintenance solutions, we ensure a single source for data across enterprises to help banks reduce risks and enhance productivity.
Leveraging the API-led integration, Techwave’s seamless integration process is tailor-made. We factor in all vital aspects like management, customer master, invoicing, and logistics.
Flexible and hassle-free, Techwave’s API service solution has earned kudos post-deployment. We ensure that disruptions, costs, and complexities are balanced with the right architecture choices which have proved successful globally.
With an end-to-end digital architecture that leverages futuristic technologies, Techwave has set the benchmark for seamless adoption of Open Banking Platform by banks, even those with legacy banking premises!
Security Mechanisms to protect Consumers and Providers and Enablers for Open Banking
Open Banking lets consumers share their financial data with third-party financial products and service providers. This sharing of data is done through APIs (Application Programming Interfaces), which are a set of software rules that govern how different applications can interact with each other. While Open Banking has the potential to increase competition and drive innovation in the banking sector, it also raises important issues about security. Data sharing between multiple parties is the prime concern amongst customers, and there is a greater risk of it being compromised.
Know about the latest cyber security strategies leveraged in the open banking sector
To combat security challenges in open banking, Techwave provides a simple, convenient, and secure experience when customers are transacting. We’re committed to developing innovative security mechanisms to protect consumers, providers, and enablers for open banking. For instance, Techwave uses a robust framework to deliver high-quality banking software products. We also use secure communication protocols to maintain privacy, integrity, and data authentication.
In this article, we’ll explore some of the security mechanisms provided by Techwave that have helped protect consumers, providers, and enablers of open banking. By implementing these measures, organizations can ensure that their data is safe and secure, and customers can, in turn, control their finances in a better way.
a. Adopt a Secure Software Development Lifecycle (SSDLC) and set up a governing body that drives its adoption and continual refinement of the tools and processes
b. Publish the SSDLC process for community reviews. This might seem a risk initially, but research has shown that community-driven initiatives result in more mature processes
c. Build using highly curated and approved open source libraries.
d. Adopt shift-left as a mechanism to anchor all development practices to security
a. Adopt strategies such as Defense-in-depth and 3-tier network security models to protect the organization’s assets.
a.Deep focus on alignment to various industry standards
b.Adopt OAWSP (Open Web Application Security Project ) Top 10 Security standards
c.Use tools such as SONAR, BlackDuck, and CheckMarx for automated reviews
a.Use the latest TLS (Transport Layer Security) versions
b.Use certificates issued by highly trusted Certification Authorities. Do not use certificates issued by providers such as LetsEncrypt.
c.Always prefer mTLS (mutual Transport Layer Security) using client certificates for the system–system interactions.
d.Always white-list IP addresses of callers where possible
e.Use FIPS-approved algorithms only.
f.Use strong ciphers – for example, bit lengths of 2048 and higher for RSA and 256 or more for AES
g.Use HSMs (Hardware Security Modules) for storing crypto keys and performing crypto operations. Discourage the use of other lesser mechanisms such as Java key stores, Vaults, etc.
h.Prefer MLE (Message Level Encryption) over Transport Level Security as this gives better end-to-end protection
i.Use JOSE standards (JWE, JWS, JWK, etc.) for encoding and decoding messages
a.Clear classification of data assets as Sensitive (PI, PII, PHI) and Non-sensitive
b.Prefer microservice architectures that break datasets by Function and additionally by Sensitivity
c.Always use encryption-at-rest TDE (Transparent data encryption) to prevent data theft from disks
d.Always use encryption-in-transit for exchanging data with application clients
e.Never store sensitive data in clear.
a.Don’t use homegrown user and password strategies. Use Identity Management systems that are designed to work for social use cases using protocols and standards such as OAuth2, OpenID Connect, etc.
b.Prefer SSO where possible to reduce the number of authentication credentials required to be remembered
c.Build an ability to revoke tokens issued and force re-authentication
d.Limit the shelf-life of various Access and Refresh tokens. Less is better.
a.Review carefully for the presence of sensitive data
a. Proactively archive (purge) data that is no longer required to be retained
a. Use anonymization and obfuscation practices when moving production data to other lesser environments
Techwave has enabled a secure authentication platform for providers and consumers. Also, it has permitted them to meet the stringent security requirements of open banking initiatives.
With our experience and expertise in developing innovative security products, we are well-placed to help our clients address the challenges posed by open banking. Techwave’s solutions have helped several organizations stay one step ahead of evolving cyber threats.