Everything You Need To Know About Open Banking API Security Standards And Risks
Updated: Jul 28
Open Banking API Security: All You Need To Know
With the rise of Open Banking comes increased concern about Open Banking API security. Open Banking APIs allow financial institutions (like banks) to share their customer's banking information with third-party fintech providers. This is done to create a larger ecosystem of financial products and opportunities - which has many advantages.
At the same time, all of this data sharing between financial platforms brings up questions of how secure customers' data is, and how their data is being accessed. The good news is that Open Banking involves many tight security measures to protect customers' banking information and ensure all APIs operate at the same high level of security.
In this guide, we’ll break down a few of the most prominent Open Banking API security concerns, and explain how Open Banking is able to protect users against these issues.
Open Banking API Security Risks
While Open Banking provides many exciting opportunities in the world of finance, concerns about the safety of Open Banking exist. These risks are focused on consumers' financial privacy, and what could happen when your banking information is shared with third-party providers.
Some common Open Banking API security concerns include:
This is in the case of cyber criminals finding security weaknesses in APIs to launch attacks on them.
Attacks On Fintech Companies
This is in terms of cybercriminals launching attacks on the fintech companies that have access to banking data through Open Banking APIs. These third-party companies have different security measures for the banks.
Attacks On Open Banking Platforms
Cybercriminals may also target specific Open Banking platforms to find security weaknesses and retrieve sensitive information from the users.
The general idea is that the more openly financial information is shared the more concerns there are about security. However, due to the way that Open Banking is set up, there are many strict Open Banking security practices in place to prevent these kinds of attacks from happening.
Open Banking API Security Measures
Open Banking security standards exist to help eliminate the risks. Here are a few of the Open Banking API security measures to take note of.
Open Banking Regulation
There are strict standards that all third-party fintech providers need to follow if they want to be part of the Open Banking ecosystem. These standards are controlled by financial regulators - such as the Financial Conduct Authority (FCA) in the UK.
The FCA sets the standards that fintech companies need to follow, and they can only access Open Banking APIs after they have proven that their security systems match these standards.
This is only possible after undergoing a security audit. And these platforms need to go through regular security checks to ensure their processes are up to standard according to the relevant Open Banking regulator.
Authorisation and Authentication
Advanced authorisation and authentication processes exist to improve general IT security. These processes are also applied to Open Banking APIs and platforms to ensure that the strictest security measures are implemented.
These processes also include aspects like multifactor authentication and biometrics.
Technical authorisation, consent management, and user authentication systems have extra security layers. This means APIs need to be integrated with identity and access management (IAM) and web single sign-on to ensure top-notch security.
Due to the nature of Open Banking, there has been a greater focus on giving users more control over their data. This includes third-party fintech providers being more transparent about how customer data is being used and allowing users to engage with this data.
If you use a third-party Open Banking platform, there should be complete transparency over how your data is being stored, how the tool is being regulated, and how you can control this data. This gives the user more power, helping to reduce Open Banking API security concerns.
AI in Open Banking Security
With the implementation of Open Banking, the power of AI is also enhanced. AI technology has more data to access, and so it can become more powerful.
This includes AI systems that can identify unusual activity, verify and identify users, and monitor users' accounts to ensure tight safety standards are being implemented.
Information Sharing to Improve Security
With the rise of Open Banking comes enhanced collaborative intelligence and information sharing across different financial institutions. This information sharing is to stay up to date with ever-changing cybersecurity threats and processes.
This helps the entire banking environment to improve its security processes and stay up to date with security issues as they develop.
Thanks to the collaborative nature of Open Banking, there is a more coordinated approach to cybersecurity. This helps financial institutions identify security vulnerabilities before they even become an issue.
Open Banking API Security Standards
Various unique Open Banking API security standards are being developed to make sure that Open Banking can operate while maintaining a high level of security. Some of these security standards include:
Electronic Identity, Authentication, and Trust Services is an EU standard to enhance electronic identification.
Mutual Authentication over Transport Layer Security (mTLS) is used by Open Banking clients and servers to securely validate certificates.
An advanced authentication layer to securely prove a user’s identity.
A set of unique Open Banking API security features that adds a tighter system of security to authenticate users.
Financial-grade API is a type of OpenID Foundation profile that adds advanced protection to financial institutions that use Open Banking.
Sharing financial data between different platforms may sound scary, but thanks to strict Open Banking regulations and security standards, it is completely secure.
Open Banking API security is enforced by the FCA at the highest standard, and no Open Banking providers can access APIs without meeting these security standards.
Open Banking exists to create a more secure, transparent, and trustworthy financial ecosystem. It helps both financial service providers and customers achieve more.
Thanks to the tight security measures in place, users have more control over their data, instead of being more vulnerable to security concerns.