Open Banking or a Can of Worms: Choosing Open Access Over Data Security?

by Brian Riley 0

business man entering data of a credit card . On-line shopping on the internet using a mobile phone

Open Banking is a great buzzword but is it overrated?  Under PSD2, open banking is intended to bring more lending options and better competition (hence lower pricing) to consumers. Only 3 banks complied on the due date, Allied Irish Bank, Danske and Lloyds Banking Group.

Sitting in the US, it is hard to figure why Europeans do not see the potential for a security blowup.  Opening up banking systems to loosely regulated firms sounds like a recipe for disaster, at least in the large U.S. Market.

  • “Driven by a new EU directive, PSD2, and an order by the UK’s competition and markets authority, open banking aims to boost competition and choice in the banking sector. The legislation covers nine of the major banks in the country, although other banks have opted in to the UK’s standard and more are expected to join.

  • Specifically, the new regulation means that customers can now allow third parties to access their financial data – data that banks have historically kept under lock and key. For non-bank business lenders, this opens up a whole new world of opportunities.

In Open Banking, we take careful, secure banks and allow third-party firms to enter the internal bank infrastructure to create unrelated banking offerings.  Sounds like the EU is adding doors that can be subject to forced entry by fraudsters.

  • No doubt, banks, fintechs and other third parties will have operational challenges to overcome as this new legislation takes them into unknown territory. Some may lose out; others may find a new role in the market. Ultimately, the biggest winner will be the customer – and rightly so.

That is one way to look at it.  Another is to let the free market prevail.  Allow alternative lenders to advertise and create sufficient internet presence so that consumers can find them.  Concurrently, lock down the system against misuse.  It is much more than just EMV; banking needs to be impenetrable and not particularly open to fraudsters.

…Just like EU Interchange regulation: poised to help consumers, but no cardholder value?

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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