Open banking is changing the way people think about financial institutions – including credit unions – and transforming the way these institutions work. By allowing third-party financial service providers to access a credit union member’s data through application programming interfaces (APIs), open banking increases transparency, facilitates collaboration, and creates new financial product opportunities.
Credit unions that choose to offer their members digital open banking app experiences need to understand the industry landscape and regulatory environment. They must also learn how to protect all transactions and personal financial information in this larger and more complex cybersecurity threat landscape.
Bringing Open Banking to American Credit Union Members
Unlike other parts of the world where regulatory directives drive open banking, in the United States, industry-led initiatives are driving adoption. Studies have shown that US consumers are generally receptive to open banking. FT Partners Research reported that the greatest interest is coming from Millennials and Gen Z. A Deloitte study showed that consumers with more than $250,000 in annual income are the most receptive to sharing their financial data and to the idea of an open banking system in general.
To serve this market, several US financial institutions have launched open banking projects aimed at providing more personalized and convenient services. Financial Data Exchange (FDX), a US-based non-profit organization with 208 members, has developed a standard API to facilitate secure data sharing in Canada and the United States. This API has been adopted by at least some members of the American Bankers Association.
Additionally, the ABA worked with the CFPB to answer questions about data sharing and aggregation. Meanwhile, U.S. organizations such as the Financial Services Information Sharing and Analysis Center (FS-ISAC), the National Automated Clearing House Association (NACHA), and the U.S. Treasury Department are working to standardize codes and protocols that enable Open APIs facilitate fast and secure exchange of information.
Even without a federal regulatory framework in the United States, faster-moving newcomers to financial services have already developed more user-centric services that take advantage of open banking APIs. Examples include using financial data to help people get a clearer and more complete view of their finances, make faster direct digital payments, or receive personalized recommendations on transactions and investments.
For credit unions early in their digital transformation, partnering with fintech companies and technology integrators can accelerate the transition to more customer-centric banking operations. An example of this is the simplification of the adoption of the open API functionality necessary for a mobile P2P application to access the financial data of credit union members, allowing them to access their funds more easily.
This partnership helps credit unions stay competitive in a changing market and better grow member deposits. For example, they can use their strong balance sheets to invest in working with fintech partners on products for members who are interested in personal term loans as well as home equity loans. Among other things, they can collaborate on the selection models and algorithms needed to identify potential borrowers.
Some credit unions will be in a better position than others to adopt open banking, especially those that have already moved to basic cloud-based banking platforms. These institutions have weathered the pandemic more easily by coping with the rapid shift to online and mobile banking channels. Now they can more easily adopt new technologies, including third-party open banking offerings.
As they plug into today’s growing open banking ecosystem, credit unions should remember that they continue to take full responsibility for authentication and management of the identity. Security must be built into their early product plans, and it will be more important than ever to employ best practices for frictionless multi-factor authentication, detection of fraudulent transactions, and protection against cyberattacks.
Securing the open banking system
Credit unions that adopt open banking must learn to secure their environment. Gartner predicted that, by 2022, API abuse will be the most common attack vector against enterprise web applications. Fortunately, there are technologies that leverage artificial intelligence and machine learning to protect account entry points with frictionless authentication, detect fraudulent transactions, and protect against cyberattacks along the way. of the member.
Adaptive authentication solutions are available that work in the background to detect entry in real time and automatically adjust verification methods based on risk levels. Easily scalable, they can be implemented as a cloud or on-premises service, and support a wide variety of authentication methods to ensure a fully responsive, end-to-end member journey. When authentication platforms are combined with risk management and fraud mitigation solutions, cyberattacks such as phishing and zero-day malware can be stopped before they happen. do occur. These solutions provide insight into who legitimate users are while keeping fraudsters away, all in a single, easy-to-implement technology to address an ever-expanding threat landscape.
The goal is to make trusted protection simple to manage for security teams and more intuitive for users. During each session, AI algorithms are used to collect and analyze behavioral biometric data, including typing speed, swipe gestures and browsing patterns. When behaviors suddenly deviate from the norm, ML quickly identifies them and automatically initiates preventive measures such as disconnecting customers or requiring them to re-authenticate. Even with relatively little data, today’s AI-based platforms can use ML techniques to identify and anticipate new threats.
These and other measures ensure that credit unions can maintain the levels of digital security required to protect their open banking offerings without creating user friction. Only by combining the financial products members want with the convenient and intuitive experiences they demand can credit unions take full advantage of open banking to expand their footprint and increase member loyalty. .
Juan Camilo Arenas is the Business Development Manager of Consumer IAM Authentication for the Americas with HID Global, a provider of physical and digital identity verification solutions headquartered in Austin, Texas.