Open banking thus requires greater security measures, such as digital IDs that are validated through a biometric means like fingerprints. This approach is highly effective in defeating attempts at identity theft and fraudulent payments.
Open banking is quickly gaining momentum because of its benefits for both banks and their customers. Transition to an open-banking platform is expected to increase operational efficiency and improve customer experiences, but it will require banks to disclose their customers' financial information to third-party providers (TPP). This practice has obvious security risks for customer data that will require additional safeguards.
The biggest risk for banks is that they will lose control over the privacy and security of information after sharing it with TPP. Banks are highly regulated businesses, but TPPs have comparatively few restrictions on how they handle financial information, even since the advent of open banking. Hypothetically, criminals could establish a TPP for the sole purpose of obtaining financial data. Even legitimate TPPs are at risk of exploitation by malicious actors. For example, a successful attack through a TPP's applications could provide a hacker with all the information needed to impersonate bank customers.
TPPs that use outdated two-factor authentication to verify the user's identity would be especially vulnerable to criminal hacks. Two-factor authentication typically uses SMS or email messages as authentication factors. In the case of an SMS, a hacker could receive the message by swapping a mobile phone's subscriber identity module, better known as a SIM. Email accounts are also relatively easy to hack, because they require the hacker to guess only one password. The attacker could then obtain the login information through a phishing email purporting to be from a legitimate TPP.
Open banking thus requires greater security measures, such as digital IDs that are validated through a biometric means like fingerprints. This approach is highly effective in defeating attempts at identity theft and fraudulent payments. In addition, digital IDs allow users to access multiple platforms without the need go through intermediate parties that could compromise security.