Common open banking misconceptions

3 min

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With a concept as new as open banking, it’s no surprise that it isn’t well understood. As a result, misconceptions have arisen regarding how open banking works and what it does. Many believe that open banking is a risk to customer data security, the beginning of the end of traditional banking, or that it’s too expensive. Perhaps surprisingly, in all three cases, the opposite is true.

 

1. “Open banking is a risk to customer data security”

This is only true for screen scraping- an outdated way of gaining access to open banking data using password sharing. Legitimate financial institutions follow the open banking regulation, PSD2, where security is the most important aspect of open banking. Not only is it important at the API management level, but banks also take extra precautionary steps to ensure that the data remains in safe hands. 

So, how is open banking kept safe? Financial institutions use features like Strong Customer Authentication (SCA) and Consent Management. Consented access gives control to bank customers and means no data is accessed without their knowledge. SCA means that two-step authentication is available that doesn't impede the user experience. Many banks also have fraud detection mechanisms to identify fraudulent transactions.

For financial product and service providers it's not as easy as just asking for a customer's online banking credentials. Third-party financial service providers are obligated to demonstrate necessary data security for banks to even be able to exchange data with them in the first place. As a result, open banking makes customer data security stronger and not the other way around.

 

2.  “Open banking is the beginning of the end of traditional banking”

Although open banking will, and already has, significantly changed the banking industry and some of these changes will result in greater competition for banks, those that adapt to these changes and work towards satisfying customer needs, will gain benefits from the new opportunity.

Through open banking, banks are able to improve their products and services by giving users new ways to use their accounts. New technology alongside competition breeds innovation, which ensures customers' needs are met to the highest level by forcing competitors to offer the best product at the best prices.

From introducing ways to reduce debt to facilitating better credit scores, bank and fintech collaborations have already brought an endless list of open banking innovations. This collaboration will continue the revolutionization of customer experience and result in even more business opportunities. 

 

3. “Open banking is expensive”

Open banking has – theoretically  – been free in the UK since 2018 and in the rest of Europe since 2019. In practice, access to the same APIs ends up not being free at all for the end-user. All open banking companies, except one, choose to charge users for their API connections, the same ones these companies connect to for free. This is a shame considering the price barrier blocks many developers and businesses from building new fintech services that compete with large retail banks.

Luckily, Nordigen offers free access to PSD2 data across Europe with no hidden costs. They’re the only open banking company in Europe that provides free access to banking APIs, as most TTPs have decided to charge for this connection they get for free from the bank. Thanks to Nordigen, open banking can be accessible and free – as it was intended.

 

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Article by

...Laura Aasheim
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