This is the age of digitization and technology is playing a crucial role in shaping and influencing the banking scenario in the entire world. The banking industry has been witnessing a series of disruptive changes in the last decade, creating newer and enhanced customer expectations, newer product offerings and a greater demand for state-of-the-art emerging technologies. With the cryptocurrencies, advanced payment methods and new regulations, even traditional banks are having second thoughts on their long-term vision and strategies and welcoming proactive technological transformations.

Open Banking – A definite Game Changer

With the rising demand for better data accessibility, especially in the financial services industry, the use of APIs by banks are becoming increasingly common enabling fast and cost-effective services to customers. This is where the latest buzzword Open Banking is gradually gaining popularity in the Banking Domain. Open Banking is based on the idea of sharing selective customer data which is held by the Bank through open APIs (Application Programming Interfaces). Several countries across the world have started slowly moving towards adopting this latest technology. The new European Union (EU) directive, PSD2 (Payment Service Directive 2), is making waves in this area, questioning the monopoly of Banks in handling customer data.

From the very beginning, the customer data have been owned and used by the Banks. Banks have always had the monopoly over the transactional data of their customers. Open banking, is potentially earth-shattering, changing everything, triggering a revolutionary change where the transactional data belongs to consumers and not the Banks. Now through new directives by various governments, Banks will be forced to share this data to external agencies where they will be able to use the information for the betterment of customers and their needs.

What does this mean for the Banks?

Big technology companies such as Google, Amazon, Apple, Facebook, Alibaba (collectively called GAAFA) are already foraying into the financial services space. The availability of transactional and financial information would enable these new players to lure away the customers of traditional Banks through their attractive product offerings. The traditional banks will face the heat in terms of customer loyalty, revenue losses and depreciation in brand equity. Even though Banks would face tough times, it is a great opportunity for banks to transform and transition from traditional banking to an innovative financial service provider. The environment is favorable, and the percentage of tech-savvy customers are increasing. There is no better time than this to embrace the new rules.

Going digital is the way forward

Majority of the Banks are going digital to be competitive and to satisfy the changing needs of the customers. But, computerization of records and costly software upgrades doesn’t always solve the problem. With all the digital transformation, the one question any bank should answer is: With so much investment, are the product and service offerings truly customer centric?

Creating a favorable ecosystem with the right combination of technology vendors, partnering with the state-of-the-art Fintech solution providers, and better change management would enable traditional banks to become more competitive, customer centric, agile and innovative. The long-term strategy of the organization should hover around creating this ecosystem.

One can see the seeds of Open banking in the Indian context in Unified Payment Interface or UPI. In UPI platform, banks started sharing information to third party service providers like Google pay or Paytm. It was an instant success and adoption rate exceeded all expectations. This platform makes Banking easier and more convenient to customers. Customers are now able to view, transact and enquire all their Bank accounts under one roof.

Bahrain is leading the transformation in the Middle East, setting the pace for the adoption of Open Banking services in the Financial Services sector. The new regulations allow unhindered access to bank customer data through third party payment initiation service providers (PISPs) and account information service providers (AISPs).

Open banking is not without challenges

Open banking is forcing banks to open their data sets via secure application programming interfaces (APIs). Providing access to consumer data to other fintech providers increases the bank’s responsibility around security. The methods and procedures used may make operating processes susceptible to corruption and companies need to be clear on how they will safeguard their data against fraudulent activity. With complex chains of data access, both banks and FinTechs must also consider the obstacles associated with responsibility for any security breaches, and ensure that their software is able to identify, predict and react to risks or breaches in good time.

Secure Open Banking by Cyber Security automation

Cyber secure Open banking is the solution to the challenges mentioned above. Tried and tested cybersecurity methods with a blend of automation will go a long way. Segregation of duties, Privileged and emergency access management, Security tracking and monitoring, Technical threat and vulnerability management and Security program governance procedures can be automated with the help of Robotic Process Automation (RPA). Let’s look at how RPA create value in Information Security to derive the full benefits of open banking concepts.

Security Organization Operational Security Management Identity Management Access Management Security Incident Management Physical and Environmental Security Information Technology Security Security Program Governance ➲⚙ Network Security Oversight ⚈ Identity Management ➲ Privileged and Emergency Access ➲❂ Information Security Incident and Event Reporting ⚈➲ Physical Security Management Technology Security Definitions Coordination Contact with Authorities and Regulatory Bodies ⚈➲❂ eCommerce Security ⚈ Authentication Database Authorization and Access Management ➲❂ Management of Security Incidents and Improvements ➲ Environmental Management ⚈➲⚙❂ Application Processing Integrity ➲ Independent Review of Security Program ⚈ Malicious Code Protection Network Authorization and Access Management ➲❂ Remote Access Authorization and Management ➲❂ Equipment Management ⚈➲⚙❂ Encryption Solutions Technology Information Disclosure ➲⚙ Protect Electronic Transportable Media (e.g., USB, CD) Operating System Authorization and Access Management ➲❂ Segregation of Duties ⚈➲⚙❂ Physical Access Administration ➲ Source Code Security and Version Control Security Education and Awareness ❂ Device Protection (e.g. Laptops, PDA) App Authorization and Access Management ➲❂ Technical Threat and Vulnerability Management Security Tracking and Monitoring

⚈ Eliminate material human effort

➲ Reduce costly errors; improve quality

⚙ Capacity and critical path

❂ Refocus knowledge workers for greater value

Conclusion

We are witnessing a creative destruction of financial services, in order to make way for innovation, by rearranging itself around the customer. Those who can do this in the most relevant and exciting way securely using data and digital, wins! Open banking is an imminent and inevitable change and whoever adopts it early would reap the benefits, witnessing positive changes in their bottom line through better customer retention, innovative product portfolio, and enhanced brand perception. We are moving towards a world where there will be productive competition amongst financial service providers and customers will have products tailored to their personal financial circumstances and preferences, providing more options to manage their wealth. It will be exciting to watch how banks embrace the new regulations and apply new technologies to innovate and transform their services.

Talk to our experts to know more about cyber secure open banking.