Why trust is the key to open banking

Banks that embrace new digital technologies and secure data-sharing methods will be well-positioned for future success.

Open banking has the potential to provide many benefits for consumers and financial institutions, but concerns over cybersecurity risks and the protection of personal data have been holding back adoption in the U.S. For open banking to deliver on its promise, we need a key ingredient that is currently lacking: Trust.

The concept of open banking is designed to give consumers greater control over their data and the ability to decide who can access it. It allows third-party financial services providers access to consumer banking transactions and other financial data. Traditional banks in the U.S. have tended to view open banking negatively, seeing it as an avenue to greater competition from fintechs and neobanks, but they are also seeing potential benefits.

Embracing open banking enables traditional financial institutions to create new revenue streams and service models, improve operational efficiencies and provide differentiated, tailored products to their customers. According to a survey by Accenture, 90% of bankers now believe open banking will boost their organic growth by up to 10%. In the U.K., open banking is estimated to have unlocked a $10 billion revenue opportunity.

Sign up for the free BAI Banking Strategies newsletter and get industry insights delivered to your inbox.

But a recent international survey of retail banking customers conducted by ING showed that only 30% of consumers are comfortable with their bank account data being shared with third-party providers. One need only look to examples like the third-party data breaches that exposed personal information of 7.5 million customers of the neobank Dave or 100 million customers of a leading bank to understand consumer concerns. When it comes to sharing access to sensitive financial data, trust is essential.

Establishing trust from the start

So, how can banks assure customers that their data is safe in an open banking ecosystem? It begins with adopting technologies that can prevent fraud and ensure strong data security from the very first interaction – during the new account opening and onboarding process.

Sophisticated fraudsters use advanced methods, such as synthetic identities and stolen identities, to exploit vulnerabilities throughout a bank’s systems. Banks that proactively use identity proofing technologies, including continuous “know your customer” (KYC) services, transaction monitoring, document authentication and biometrics as part of their onboarding process will ensure stronger security throughout the customer lifecycle.

By establishing transparency in their implementation of proper access controls and authentication for customer data, financial institutions can give peace of mind to their clients. The ability of clients to control their data and how accessible it is to third parties can incentivize their use of new services. Proper authentication and auditing mechanisms can bolster client confidence in the financial institution.

Identity verification and the KYC process must be convenient and frictionless enough that customers do not abandon the registration process or feel they are overexposing their data. To ensure this, banks should look for solutions that provide workflow orchestration and can integrate many different pieces of the identity proofing process – from identity document capture to identity attribute inputs, data-centric validation, and data scoring – into a simple trust score that allows for quick, objective decisions.

Too many banks today continue to use static identity verification approaches that force users through a common user experience regardless of the assessed risk and limited only to the onboarding event. By leveraging more modern technologies powered by machine learning and artificial intelligence, banks can gain actionable insights in real time to identify trusted users and detect fraud patterns throughout the entire customer journey.

The future of banking is open

Financial institutions today are operating in a very challenging business environment. They face increased competition from neobanks, fintechs and all-digital startups. At the same time, they are fighting growing levels of fraud while trying to meet consumers’ demanding customer experience expectations.

Open banking provides an opportunity for banks to rise above these challenges by delivering the types of convenient digital services consumers today want. But this new type of data-sharing ecosystem will only work if customers feel confident that their accounts and data are secure.

With the right technologies that are privacy-minded and dynamically adaptive, banks can establish and maintain the trust necessary for open banking to take off. The future of financial services is wide open with possibilities, and the banks that embrace new digital technologies and secure data-sharing methods will be positioned for success.

Jose Caldera is chief product officer at Acuant.