Is Open Banking Safe?

Open Banking Safety and Security

Open banking officially made history in Australia when the Consumer Data Right (CDR) went live on 01 July 2020 with the ‘Big 4’ banks, sharing savings accounts and term deposit data. The new regime gives consumers ample control of their financial data right from the start, however, the full program will be rolled out in stages over the next two years.

Initially, consumers can choose to share their deposit and transactional information with other accredited organisations, including banks and FinTech companies who will simplify information to provide more tailored banking products and services. Additionally, on 01 November 2020, other financial data including mortgage, investment, and personal loans information commenced rollout and has been extended up until July 2021 for go live. Similar to the open banking initiatives that have been introduced in the European Union and U.K., the CDR will transform financial industries and encourage innovation across all sectors.

Is Open Banking Safe?

It’s no surprise that security is of major concern when it comes to open banking. With the roll out of CDR, safety is an important element, and will be as secure as online banking exists today. To ensure the security of financial data as it is transferred between platforms, open banking application program interfaces (APIs) adhere to specific rules and guidelines and are put through extensive testing before they become available.

By using an open banking API, consumer information is safely and efficiently delivered to its destination. Rather than solely relying on screen scraping technology to aggregate consumer data, Open Banking APIs allow a standardised practice of sharing consumer data and consent where the consumer ultimately decides which kind of data is shared and with whom, revoking the authorisation at will. This method also does not require a user to share their password information, which ensures further security.

Protecting financial data is of paramount concern for both Financial Institutions and FinTech firms. Of course, regulations and security requirements are built into the legislation surrounding open banking, but it is also in a bank’s best interest to ensure consumer data always remains protected. In fact, by opening up the market to third-party organisations, the potential for security innovations is even greater, increasing the ability to mitigate fraud.

Open Banking and Security

Benefits Open banking will provide many benefits across the board, including promoting innovation and competition, as well as offering increased transparency for the consumer.

  • Customer is in the driver seat: At the root of open banking is creating a system that is open and transparent. The consumer will determine when and where their information is used with the understanding that companies have been through a stringent accreditation process before getting access to their data.
  • Improved protection for customers: With the innovation of the industry comes further technological growth. The implications of using artificial intelligence (AI) to monitor transactions will create a stronger, more secure infrastructure.
  • Proactive cybersecurity: Rather than waiting until weaknesses are exploited, open banking allows for the development of innovative security that preemptively discovers vulnerabilities and anticipates attacks.
  • Collaboration and standardisation: The move to open APIs will drive collaboration between banks and third-party providers, of course. But it will also ensure standardisation of protocol across all sectors of the industry.

Who Regulates Open Banking?

The implementation of the open banking will be regulated by the Australian Competition and Consumer Commission (ACCC) alongside the Federal Government Treasury Department who recently took over the policy and rules team from the ACCC. The commission however will continue to oversee the process for all Data Holders which includes the four major banks, ANZ, NAB, Westpac and Commonwealth Bank and other ADIs (Australia Deposit-taking Institutions). They will also lead the accreditation process for FinTech companies that wish to enter the open banking regime as Accredited Data Recipients.

Similar to the role that the Competition and Markets Authority has played in the U.K.'s rollout of open banking, the ACCC and Treasury have an important job of ensuring that deadlines are met, and regulations are adhered to. The commission and Treasury are is also responsible for making the CDR rules, establishing a registry of accredited companies, monitoring compliance, recommending future sectors and communicating to stakeholders about their rights.

Open Banking in Australia

As the proposed timeline for implementation nears, we are seeing a notable rise in interest about open banking in Australia. The anticipation surrounding the regime is shared by consumers and businesses alike. The potential to transform the financial landscape, while ensuring transparency, security and innovation across all organisations is ever evolving and is being adopted on a global scale throughout the United States and Europe at present with other countries such as New Zealand, Asia and South Africa coming on board soon.

Explore open banking examples to get a glimpse at what the future of the financial industry looks like in Australia from use cases where open banking is already in action.