Banks need to secure the exchange of financial data while making sure the customer experience is as seamless as possible. Find out how dynamic authorization and digital identities are enabling a data-sharing ecosystem that customers trust.

We’re almost winding up 2021 and over the years open banking has been gaining momentum slowly but surely.

The boom of the API economy has triggered new possibilities, allowing all of us in the industry an opportunity to build agile financial products and services. Come to think of it, open banking has made considerable headway from just being a holy grail for developers to a key driver for innovative business models.

So much so that, if you aren’t thinking of tapping into the benefits of open banking, then you’re already lagging behind. The growth of open banking users worldwide has been phenomenal and is expected to track an average annual rate of 50% from 2020 to 2024. The future looks promising too — with the number of open banking users worldwide expected to be nearly 132.2 million in the next 3 years.

By democratizing financial services for the new-age customer, open banking has created a level-playing field for organizations in the domestic and global markets. With all this popularity, comes the age-old concern of securing data sharing between banks and customers. Before we get to grips with that, let’s take a quick look at the open banking journey so far.

The open banking revolution

Much has been debated on whether open banking has been a boon or a bane. The way I see it, open banking was never expected to be a ‘big bang’ moment.

The reason?

It’s simple – we all know that old banking habits die hard.

But industry wide-changes brought forth by traditional players and compelling propositions championed by FinTechs, are bringing about a massive shift in the financial landscape.

Though recent reports say that nearly 52% of Americans have never heard of open banking — what we really need to be looking at is the overall adoption of open banking initiatives and not so much its recognition.

Source: Axway

In recent years, competitive influences have been driving a significant change, as a result of which open banking has been gaining a strong foothold among the legacy players. Up against an existential crisis coupled with the fear that digital-only banks will eat up their market share — traditional financial institutions are more open to investing in innovative solutions that are bolstered by open banking.

The multifaceted and far-reaching benefits that open banking brings to the table, need no special mention. While Europe has been the epicenter for the open banking revolution, looking at the swath of new FinTechs entering the open banking space, it’s safe to say that the U.S. is not far behind. Take the case of Gen Z — growing up with high-speed internet and smartphones in their hands, they depend heavily on apps like Venmo and SoFi to transfer money and manage their finances.

Securing data sharing in the open banking world

While open banking has been pivotal in establishing new-revenue sharing ecosystems, the success of open banking depends on striking the right balance between securing data and offering frictionless customer experiences.

When it comes to consent-based sharing of financial data, there’s no question that data protection and security measures must be in place. But this cannot be done at the cost of hampering the customer experience. There is an urgent need for stronger authentication, one that goes beyond the multifactor authentication that most organizations have in place.

Organizations today require intelligent security systems that can decipher the context of every transaction in real-time. Which explains why context-aware, dynamic authorization is the need of the hour. Open banking APIs are used to exchange customer data. These APIs must be secured with dynamic authorizations that will shut the door to fraudulent activities or any unwanted exposure. When customers are in control of how their data will be used, it further instills trust in the open banking system.

It won’t be long before we see the rise of digital identity trust networks in the open banking space. With programs like UK’s digital identity & attributes trust framework coming to the forefront — we will soon see identity service providers enter the market. These custodians of consumer identity tokens will ensure the secure sharing of digital identities with financial services organizations. This approach will not only earn the customer’s trust but will also pave the path for innovation and streamline processes like customer onboarding.

On the road to open banking excellence

While banks are increasingly embracing open banking, I agree with Jim Marous, Co-Publisher at The Financial Brand, when he says that the maturity of open banking remains surprisingly low.

Today, we’re on the move from open banking to a world of open finance — enabling a wider range of possibilities and choices for customers.

Building an ecosystem that’s secure and trusted by customers will bring about never-before-seen advancements in the financial industry.

Follow me on LinkedIn for a weekly dose of updates from the FinTech and payments industry.

T M Praveen is a highly accomplished global payments leader with over 20 years of experience. A veteran in the payments industry, Praveen has immense wealth of insights to share in payments innovations, emerging technologies, FinTech, and financial services.

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