Open banking has opened up new possibilities for financial and technology services, allowing businesses to harness consumer data like never before. For example, third-party service providers can now access bank account information, account balances, customer financial history, and more, through banking links and customer consent.
Growth and improvement through deep collaboration
The Internet of Things (IoT) could see growth and enhancement through deep collaboration with open banking technology to provide additional benefits and uses to people.
Benefits include consumers accessing their financial data such as bank balances through wearable technology and AI assistants, making requested and automated payments through IoT devices, enabling more detailed credit checks, easier insurance claims , etc.
Data Security and Cybersecurity in Open Banking
When it comes to any new fintech innovation, concern and skepticism usually arise among consumers in terms of data security and cybersecurity. Many consumers believe that traditional financial institutions are better equipped to protect their data than fintechs.
This is likely due to years of continuous use and a lack of deep understanding what terms such as “open banking” imply and what security measures are in place to protect consumers.
Open banking is safer than ever and is expanding its data security practices and policies through various case studies in the IoT world.
Current Data Protection Practices in the IoT
The rise of IoT and smart technologies has led to constant improvement in user experience through seamless day-to-day operations that meet user needs. However, in terms of security, IoT has already come under a lot of criticism for built-in security features, and it often relies on the security of the network to which the technology connects.
Data collected, stored and shared by IoT devices must be protected under the General Data Protection Regulation (GDPR). GDPR refers to a legal framework that regulates guidelines on how data should be collected and protected.
It is a critical requirement for IoT application providers to adopt GDPR-compliant data protection and data security measures to ensure the safety and protection of their users’ data and ensure that embedded sensors do not collect no more data than necessary.
IoT technology has the potential to be targeted with malicious intent
Like any other connectable device, IoT technology has the potential to be targeted, exploited, and used with malicious intent. For example, in 2020, a Palo Alto Networks study found that 98% of all recorded IoT data traffic was unencrypted.
A 2021 global survey by IT security firm Trend Micro found that 86% of IT professionals believed their organizations could do more to educate about IoT security threats.
With forecasts estimating over 30 billion IoT connections established by 2025, security must be at the forefront of users’ and organizations’ concerns.
Open Banking will protect a specific part of the data
While open banking can only protect a specific portion of data collected by IoT devices with the utmost certainty, implementing open banking policies and technologies primarily protects financial and payment-related information. .
With smart payments, automated shopping and direct banking links on the rise, finance will undoubtedly become a fundamental aspect of the IoT.
How open banking is secure
Security is one of the main pillars of open banking, and despite the security issues, it is as secure as traditional banking.
The Open Banking API endpoints were actually developed by banks and have been rigorously tested to ensure maximum data security.
Open banking also empowers consumers themselves, allowing them to share data only with third parties of their choosing. Eligible banks have also implemented their own security measures, providing a layered security wall.
Payment Services Directive 2 (PSD2)
Payment Services Directive 2 (PSD2), the regulation that created open banking, was initiated in part to reinstate security requirements in the payments industry. Strong Customer Authentication (SCA), dynamic binding requirements and consent management have been introduced to ensure that only authorized users can connect to sensitive data.
Consent management is required when banks and other businesses ask customers to consent to the collection and sharing of their personal data by the entity.
SCA authentication process
SCA refers to an authentication process that requires the account holder to prove their identity using two or more security elements divided into three categories:
- knowledge (something only the owner knows);
- possessions (something that only the owner physically holds); and
- inherence (something related to user-specific attributes, such as fingerprints or voice recognition).
Dynamic Link Codes
Similarly, dynamic binding establishes user identity by requiring a new unique code for each new transaction.
Unlike questionable practices, such as screen scraping (the process of copying information from a screen rather than logging in securely to the actual platform displayed), open banking does not require never have users share their login credentials with anyone, which makes the above methods a viable option for identity. verification.
How IoT devices benefit from open banking security measures
While IoT devices are all about convenience and consistent data sharing, some sensitive information, such as financial data, should not be easily accessible outside of the agreed perimeter.
With unauthorized access to devices being a primary concern, it is essential that open banking identity verification processes supported by PSD2, such as SCA, are implemented when setting up automated payments and new transactions. This ensures that only the authorized user can set up future payments.
On the other hand, this reduces the simplicity and ease of use of the IoT is so appreciated. Nevertheless, it is necessary to require the same level of security for regular IoT payments as in any other financial application.
The data collected about the user can be useful to further protect the user against fraudulent actions.
By securely connecting to bank accounts, consumer data can be collected and analyzed to create a portfolio consisting of regular spending habits, most used shopping categories, and gambling and overspending habits.
This customer file can then be used to analyze whether their current transaction is characteristic of their usual consumption behavior or not. If the new transaction does not match the typical customer profile, the system can be notified and additional verifications and identification processes can be performed.
While many IoT devices do not encrypt traffic, open banking goes the other way. It goes out of its way to ensure that the APIs are protected by implementing various security measures.
In combination with intensive identification verification and data analysis, this establishes a system of protection that, although IoT technology itself may be vulnerable to certain attacks, financial data and accounts connected to the device are always protected.
This protection ensures that fraudulent payments, connection attempts and access to bank details are limited.
IoT and open banking for the future
The protection of customer data is at the heart of PSD2 and open banking, allowing customers to control and retain their own financial information. Therefore, security is vital when dealing with sensitive financial information, and strong security measures are a top priority.
Open banking and IoT
Open banking and IoT technology will inevitably go hand in hand in the near future. Where IoT poses security concerns, open banking can help provide the answer and the safety net needed to protect users when accessing their finances on the go.
As technologies continue to evolve and prosper, these two open banking options will generate more ways to connect and create countless innovations to improve and improve the lives of users around the world.
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