The risks of open banking

Open banking is driving the development of new FinTech services for bank customers, but is it secure?

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Open banking is still relatively new and, in principle, the risks of fraud are lower than with other online payment methods such as credit and debit cards. But is this actually true? Are there potential vulnerabilities in open banking that aren't present with existing banking and payment methods?

The open banking regulations in the UK and Europe have only been in force for a couple of years. Although the underlying PSD2 (Revised Payment Services Directive) EU regulation came into existence in early 2016, it wasn't fully enforced until September 2019. Since then, the number of FinTechs and other companies - officially known as Third Party Providers or TPPs - making authorised accesses to bank customer accounts has steadily increased.

Some FinTechs use transaction data from banks to help their customers budget, apply for loans and manage their money. Others offer online payment services that are faster and more convenient than other payment methods. All of this is possible thanks to open banking APIs, which provide standardised methods of access to transaction data and payment protocols for authorised TPPs.

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