A Quick Review of Open Banking
Open Banking is based on the use of an Application Programming Interface or API. The bank essentially exposes, through an API, customer data. For example, a customer may wish to purchase a product; using an Open Banking enabled service, the customer would be asked to log in to their bank account and consent to share certain data, which would then be passed to the requester. To complete the transaction
Whilst this sounds simple, the implementation must be done in a highly secure manner. However, the concept is expected to revolutionize the industry and signs are that it is already showing progress; Plaid, an Open Banking API aggregator was acquired by Visa for $5.3 billion earlier this year. More Open Banking aggregator vendors are entering the space and integration with Open Banking is being made easier through initiatives such as the UK’s Open Banking Initiative.
The bottom line is that Open Banking facilitates the user-centric sharing of financial data between services. Entities that want to use Open Banking to provide products must be regulated by the FCA/EU equivalent and register as an Account Information Service Provider (AISP) and/or get authorized as a Payment Initiation Service Provider (PISP).
Open Banking Applications
Money management and account aggregators
Fraud Threats and Open Banking
Fraud and transaction volume
The API connection
The consumer in the machine
Having Your Banking Open and Safe
Open Banking has enormous benefits to the entire ecosystem of players in this space: This includes banks innovating to create new products; customers having more seamless and simplified experiences; eCommerce being able to remove barriers to sales. Open Banking facilities the expanded ecosystem of services needed in a world where “connected everything” is swiftly becoming the default. But, as ever, cyber-criminals are looking for any opportunity to exploit these connected systems. Open Banking is bringing new anti-fraud challenges to the market that require a step-up from traditional methods of fraud checks.
The Open Banking Expo explains that to reduce fraud in Open banking systems, stakeholders must utilize “technology developments such as artificial intelligence, machine learning, robotic process automation, and blockchain designed to assist in improving financial crime challenges.” Smart machine-learning-based fraud detection is key in managing this new paradigm in banking. The versatility and ability to automate the detection of new fraudulent activities is crucial in a hyper-connected payment ecosystem. Vast transaction volumes place massive overload on traditional anti-fraud checking services. The flexibility of ML-enabled rules and algorithms is needed to maintain payment speed and improve accuracy in fraud detection.
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