Open banking is a term used in financial technology for financial services. This refers to the use of open APIs that allow external developers to create products and services that revolve around the financial institution.
Technology and financial services now have more options thanks to open banking, giving businesses access to customer data like never before. For example, thanks to bank relationships and customer consent, third-party service providers now have access to customer account balances, financial history, and data easily.
Cyber Security and Data Security in Open Banking
When it comes to any new fintech (financial technology) invention, consumers often express concerns and mistrust about data security and cyber security. Consumers are often of the opinion that traditional financial institutions are better suited to protecting their data than fintech.
This is probably because people have been using the same security measures for years, without understanding what they mean or what “open banking” actually means.
Open Banking is as secure as ever and is expanding its data security practices and guidelines across multiple IoT cases.
IoT’s Current Data Protection Procedures
The emergence of IoT and artificial intelligence technologies has resulted in a continuous enhancement of customer experience thanks to seamless day-to-day implementations for customers that meet their needs. IoT security features have faced some criticism in the past, though, and often depend on the security of the network the technology connects to.
According to the General Data Protection Regulation (GDPR), IoT devices must protect the data they collect, hold and share. A legislative framework known as GDPR governs the rules on how data is collected and stored.
IoT application providers must deploy GDPR-compliant data protection and security measures to protect their users’ data and ensure that embedded sensors are not collecting excessive information, but as much data as is needed. Collecting.
Open Banking will Protect a Certain Portion of the Data
Applying open banking policies and technologies provides financial security and also protects payment data, even open banking can secure a certain portion of data collected by IoT devices with full assurance. Is.
With the development of automated purchases, smart payments, and direct bank connections, finance will undoubtedly become a core component of the IoT.
Development and Improvement Through Close Collaboration
By collaborating closely with open financial technology, the Internet of Things (IoT) can evolve and further improve security, bringing new uses and benefits to consumers.
Consumers can easily access their financial information, such as bank balances and other information, through AI assistants and wearable technology. They can also make automated payments from the comfort of their homes through IoT devices. Benefits include the ability to conduct more thorough credit checks and submit insurance claims more easily.
Preserving Open Banking
Open Banking is specifically designed for security and on the same principle. Despite the security concerns, it is just as secure as traditional banking.
Banks themselves have built Open Banking API (Application Programming Interface) endpoints and carefully tested them to guarantee a high level of data security.
Open banking also gives customers more control by allowing them to choose which third parties they want to share their data with. A multi-layered security wall is provided by security measures put in place by eligible banks.
Strong Customer Authentication (SCA) process:
An authentication method called SCA requires the account holder to prove their identity using two or more security factors, which are divided into three categories:
- Possessions: (things that are only physically possessed by the owner);
- Knowledge: (a secret known only to the owner); And
- Inheritance: (related to characteristics unique to a user, such as fingerprints or voice recognition).
Dynamic Linking Codes:
Dynamic linking establishes user identity by requiring a fresh, unique code for each new transaction.
Unlike dubious practices like screen scraping, which involves copying data from a screen rather than connecting it securely to the platform being displayed, OpenBanking never asks users to reveal their login information. This makes the aforementioned techniques an effective option for identity verification.
Payment Services Directive 2 (PSD2):
PSD2 was implemented in part to re-establish security requirements in the payments industry. PSD2 is the regulation that gave birth to Open Banking. To ensure that only authorized users can connect to sensitive data, strong customer authentication (SCA), dynamic linking specifications, and consent management were introduced.
Consent management is essential when banks and other businesses ask customers for permission to collect and share their personal data.
How IoT Devices Benefit the Open Banking Security Approach
Although the primary objectives of IoT devices are convenience and reliable data sharing. One of the main objectives of IoT devices also includes the specific limitation of financial data i.e. financial data should not be readily available outside the specific boundaries.
It is important that PSD2-supported open banking identity verification mechanisms, such as SCA, are used when setting up automated payments and new transactions as unauthorized access to devices is one of the main problems. This ensures that only eligible users can make future payments.
The downside is that it reduces the simplicity and usability that IoT is so famous for. Nevertheless, recurring IoT payments must adhere to the same security standards as traditional financial apps.
IoT and Open Banking
In the future, open banking and Internet of Things technology will inevitably coexist. While IoT security concerns exist, open banking can offer solutions and necessary safety nets to protect consumers while accessing their finances.
Both of these open banking solutions will lead to more connections and many innovations that will improve and further improve the lives of people all over the world as technology advances and evolves.
Open Banking works in contrast to many IoT devices, which do not encrypt traffic. It takes all reasonable steps to protect APIs by deploying multiple security mechanisms.
This creates a protection system that ensures that, although IoT technology may be susceptible to some attacks, the financial data and accounts associated with the device are still protected. This is coupled with rigorous identity verification and data analysis. This security helps prevent fraudulent transactions, login attempts, and access to bank information.
Open Banking and the Future of IoT
PSD2 and Open Banking are built around protecting customer data and giving customers control and care over their own financial data. Since sensitive financial information is involved, security is essential, and effective security measures are of utmost importance.