Risk of data breaches
By its nature, open banking is like adding more doors and windows to your house. It’s convenient but also gives burglars more ways to break in.
Open banking increases what cybersecurity professionals call the “attack surface,” or the number of potential points of vulnerability for hackers to steal financial data.
Data breaches are a serious threat to banks and financial institutions. According to IBM’s 2024 Cost of a Data Breach Report, each breach costs companies in the US an average of $4.88 million. Therefore, banks and fintechs must prioritise strong security measures and data protection protocols to mitigate these risks.
Risk of third-party access
By definition, open banking involves granting third-party providers access to customer financial information. This introduces a level of risk outside the bank’s direct control.
Financial institutions must carefully vet third-party providers, ensuring they meet stringent security standards and comply with all relevant data protection regulations.
Risk of user account takeover
Open banking can increase the risk of user account takeover if adequate security measures are not in place. For example, if a malicious third-party provider gains unauthorised access to a user’s bank login details, they could take control of the user’s account and make fraudulent bank transactions.
A proactive approach to security, continuous monitoring and a commitment to evolving best practices and security protocols are crucial for navigating the open banking landscape.
Open banking and data analytics: A balancing act for financial institutions
The additional data exchanged through open banking unveils deeper insights into customer behaviour and preferences. This data can fuel innovation, enabling the development of personalised products and services and improved risk management strategies.
However, using this data responsibly requires a careful balancing act.
Too much reliance on data without proper safeguards can erode trust and invite regulatory issues. The opposite can stifle innovation and limit the technology’s potential.
Matomo Analytics derisks web and app environments by giving full control over what data is tracked and how it is stored. The platform prioritises user data privacy and security while providing valuable data and analytics that will be familiar to anyone who has used Google Analytics.
Open banking, data privacy and AI
The future of open banking is entangled with emerging technologies like artificial intelligence (AI) and machine learning. These technologies significantly enhance open banking analytics, personalise services, and automate financial tasks.
Several banks, credit unions and financial service providers are already exploring AI’s potential in open banking. For example, HSBC developed the AI-enabled FX Prompt in 2023 to improve forex trading. The bank processed 823 million client API calls, many of which were open banking.
However, using AI in open banking raises important data privacy considerations. As the American Bar Association highlights, balancing personalisation with responsible AI use is crucial for open banking’s future. Financial institutions must ensure that AI-driven solutions are developed and implemented ethically, respecting customer privacy and data protection.
Conclusion
Open banking presents a significant opportunity for innovation and growth in the financial services industry. While it’s important to acknowledge the associated risks, security measures like explicit customer consent, encryption and regulatory frameworks make open banking a safe and reliable system for banks and their clients.
Financial service providers must adopt a multifaceted approach to data privacy, implementing privacy-centred solutions across all aspects of their business, from open banking to online services and web analytics.
By prioritising data privacy and security, financial institutions can build customer trust, unlock the full potential of open banking and thrive in today’s changing financial environment.
