Is open banking trustworthy?

Picture this: you’re applying to rent an apartment and the company prepared to rent to you wants to know your financial history to see how creditworthy you are. 

Sure, you can go the traditional route of waiting in line at the bank and gathering the necessary financial documents (making sure you didn’t miss anything!) to bring to the company. But even then, they’re only getting a small window into your financial situation. 

Or, you can go the more modern route: enter your bank information into an online widget on the company’s website, allowing the company (or the fintech they work with) to communicate with your bank directly. The bank sends your financial information (with your consent) and the company gets a full picture of your financial history and creditworthiness. 

And all you had to do was log on and consent. 

That’s open banking — and it’s the way the world is heading. But some people still have one nagging question: is it trustworthy?

Luckily, it is not only trustworthy, but safety is a major priority of everyone involved in open banking. 

Let’s dive into the details

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Data protection is a priority

We said above that safety is a major priority, and that safety starts with data protection. Thanks to the Payment Services Directive 2 (PSD2), which is a 2018 EU legislation that standardized and established regulations for open banking, there are several ways user data is secured and protected:

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1. Strong Customer Authentication (SCA) 

PSD2 requires transactions to have SCA, which means when using open banking, a user must prove they are the correct user in at least two ways. They can confirm their identity by stating something only the user would know (password, pin); by using something they own (phone, smart card); or by verifying via something they are (facial recognition, thumb print). 

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2. Consent

Thanks to PSD2 regulations, a client must give consent to their banking data being shared or viewed. That means if you’re considering allowing – for example – a lender to connect with your bank and view your transactional history, you will be asked if you consent first. That data will not be shared or viewed unless you explicitly agree. Not only that, but the lender and any third party they use to help analyze the data will only be able to view it, not ever access it. 

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3. Registered entities

Any entity that is viewing or sharing your data will be strictly regulated as part of PSD2 rules. That means any bank you work with along with any lender, rental company, equipment provider or anyone else who needs to view your data in order to make a decision about your creditworthiness —- they are all registered with the proper authorities and they all must comply with strict PSD2 regulations 

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Other regulations help ensure safety

Apart from PSD2’s strict regulations to ensure user safety and data protection, there are even more ways that your data is safe under open banking. For example, many third parties that help provide data analysis and data compilation (like Kontomatik) will anonymize the data they receive. That means that during the labeling and analysis process, the identity of the user is kept completely confidential. Additionally, a user can opt out of sharing their data at any point, meaning that they have complete control over when and who views their data. 

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For more updates and analysis on open banking, follow Kontomatik on LinkedIn

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