Historically, banks have traditionally overseen the entire value chain, spanning from production to distribution, and have generated revenue by capitalizing on their customer relationships through interest and fees. Innovations in financial services have the potential to reshape the market by introducing new players who can leverage the products offered by banks to create fresh value for customers and diversify revenue streams. This global trend is unfolding in various ways. For instance, in the European Union, the United Kingdom, South Korea, Australia, and India, regulatory authorities have imposed mandates on major banks, compelling them to provide external firms with access to their extensive customer account data, thereby fostering competition.

In contrast, the United States and China are driving open-banking partnerships through their economies. These shifts are set to enhance the existing financial ecosystem for both financial institutions and users. However, it’s important to note that open-banking also amplifies cybersecurity risks, presenting new challenges that require attention and resolution.

WHAT IS OPEN-BANKING?

Open-banking, as a system, enables individuals and businesses to securely and in a regulated manner, divulge their financial information to third-party financial service providers. This is typically accomplished through the utilization of application programming interfaces (APIs), which facilitate communication and data sharing among various financial institutions.

Key attributes of open-banking encompass:

1. Data Sharing: This facet allows customers to grant their approval for financial institutions, including banks, to share their financial data with authorized third parties.
2. Third-Party Access: Open-banking offers a means for financial service providers, such as fintech firms and other banks, to utilize consumer data with their explicit consent. This access opens the door to innovative financial services, including account aggregation, budgeting tools, investment guidance, and payment initiation.
3. Enhanced Competition: By encouraging new entrants in the financial services sector, open-banking stimulates healthy competition, which, in turn, promotes innovation and widens the range of products and services available to customers.

THREATS AGAINST OPEN-BANKING

Open-banking centers around secure data sharing between various players opens the door for cybercriminals to exploit vulnerabilities. Let’s explore the most pressing cybersecurity threats associated with open-banking:

• Data Privacy and Unauthorized Access: One of the foremost concerns in open-banking is the risk of unauthorized access to sensitive financial information. Weak authentication methods, stolen credentials, and breaches into third-party providers’ systems can all lead to unauthorized access, compromising privacy and security.

• API Vulnerabilities: Application Programming Interfaces (APIs) are the lifeblood of open-banking, enabling data exchange and service integration. However, the openness of APIs makes them susceptible to attacks. Cybercriminals can exploit API vulnerabilities, such as inadequate authentication and encryption, to access data or launch attacks.

• Phishing and Social Engineering: Phishing attacks targeting consumers and financial institution employees are on the rise. Cybercriminals create convincing emails or messages to trick individuals into revealing their credentials, gaining access to accounts, and manipulating data. Social engineering attacks can also target employees, putting data security at risk.

• Third-Party Risks: Open-banking relies on a network of third-party service providers, introducing both innovation and new risks. A breach at any third-party entity can have far-reaching effects on the entire open-banking ecosystem, potentially compromising customer data.

• Regulatory Compliance Challenges: Adherence to regulations like GDPR and PSD2 is critical in open-banking. Ensuring data protection and customer consent can be complex, and non-compliance can result in substantial fines and reputational damage.

• Insider Threats: Insiders, including employees and contractors, can pose significant threats. Whether through negligence or malicious intent, insiders may facilitate data breaches or cyberattacks.

• Data Integrity and Manipulation: Attackers may not only seek to steal data but also manipulate it. Altering financial information or transactions can lead to financial losses and a loss of trust in the system.

WHAT CYBERSECURITY AND PRIVACY REGULATIONS APPLY TO OPEN-BANKING?

Customer consent plays a central role in the world of open-banking, granting individuals the authority to determine which third-party entities can access their financial data. As a result, this impels service providers to bear the responsibility of adhering to top-tier practices when managing this data. The primary components that financial institutions typically utilize include authentication, encryption, and authorization. However, the implementation of these components varies across different providers due to loosely defined standards, resulting in diverse approaches in the industry.

For example, each organization has the autonomy to determine how they incorporate business logic into their APIs, making it exceedingly challenging to establish standardized authorization parameters. Nevertheless, financial institutions cannot restrict technology providers’ access, as doing so would undermine the fundamental concept of open banking. Multiple APIs are created to interact and enable the integration of various services, ultimately resulting in potential vulnerabilities unique to each combination of APIs and their respective calls.

Therefore, Open Banking sets a set of complex set of requirements for cybersecurity and privacy and thus is subject to various security and privacy regulations to ensure the protection of consumers’ financial data and the integrity of the financial ecosystem. The specific regulations may vary by region, but some of the key ones include:

• Payment Services Directive 2 (PSD2) – European Union: Mandates strong customer authentication and secure APIs for data sharing.

• General Data Protection Regulation (GDPR) – European Union: Applies to data processing, requiring consent, assessments, and data protection officers.

• California Consumer Privacy Act (CCPA) – California, USA: Financial institutions and technology providers must comply with CCPA when dealing with Californian customers. It provides consumers with control over their personal information and mandates specific transparency and security requirements.

• Open Banking Implementation Entity (OBIE) Standards – United Kingdom: These standards define the technical and security specifications that financial institutions and third-party providers must follow to ensure the safe sharing of customer data.

• Consumer Financial Protection Bureau (CFPB) – USA: CFPB oversees financial data security and privacy. It has been active in creating rules and guidance for financial institutions to protect consumers’ financial information.

API SECURITY OF FINANCIAL SECTOR – OPEN-BANKING

Securing APIs in the context of Open-Banking stands as a cornerstone for safeguarding the integrity of financial and user data. While this environment presents its unique challenges, certain strategies appear to be consistent across various regulatory frameworks:

• Authentication and Authorization Measures: The implementation of robust authentication and authorization protocols that verify the identity of users and delineate what information they can access when utilizing APIs. This holistic approach significantly enhances the confidentiality of financial data.

• Encryption: Ensuring secure communication, which guarantees that data transferred between clients and the API remains protected. Additionally, sensitive data is encrypted at rest to safeguard it in storage, while robust encryption methods are employed to shield data within the API.

• Rate Limiting: Imposing restrictions on the number of API requests from a single client within a specified time frame to thwart potential abuse and Distributed Denial of Service (DDoS) attacks.

• API Gateways and Management: The utilization of API gateways acting as intermediaries between clients and the API, offering centralized security, logging, and monitoring. Additionally, platforms that encompass threat detection and traffic analysis contribute to heightened security.

• Monitoring and Logging: Implementing comprehensive monitoring and logging procedures for API activities. These logs can be further leveraged in Security Information and Event Management (SIEM) solutions to identify and respond to security incidents effectively.

HOW CODESEALER CAN HELP WITH THE OPEN-BANKING ECOSYSTEM?

It is of utmost importance to implement robust security measures in banking applications to safeguard sensitive user data from potential leaks and fraudulent activities. This is especially critical within the context of Open-Banking, where multiple entities require access to this data. While banks are highly regulated in terms of cybersecurity when they provide third-party financial services access to their APIs, the spotlight shifts to these third-party services as more accessible targets.

As a result, it becomes imperative to secure these financial services and adhere to best cybersecurity practices, with a particular focus on API security. These security measures encompass strict encryption and authentication protocols, and Codesealer has seamlessly integrated them to bolster data security, both when the data is at rest and in transit.

Through the encryption of API Request Payload and Response, Codesealer effectively thwarts any attempts at request manipulation. Furthermore, it conceals API details using dynamic encryption, ensuring the confidentiality and integrity of data are maintained, even when it comes to third-party financial services.