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Security and compliance issues limit expansion of ‘open finance’, executives say

People’s drive to adopt app-based financial services is mostly hampered by security risk concerns, according to a recent study by an identity management company.

While 7 in 10 finance executives responding to a recent survey said they plan to adopt “open banking” strategies in the next 18 months, more than 3 in 5 finance executives (61%) admitted that Compliance and security risk issues were holding them back, according to research from Curity, an API identity management platform, released last week. A shortage of skills and knowledge (51%) and “changing business priorities” (45%) were also major contributors to the reluctance of financial firms to launch or expand open banking initiatives.

Jacob Ideskog, Chief Technology Officer at Curity, pointed out that as technology evolves, “the regulations associated with its development and implementation also evolve. It is understandable that there is a reluctance to embrace open banking as regulations become more stringent and rules continue to be updated and changed.

That said, the survey found that nearly half (43%) of financial firms surveyed for the ‘Facilitating the Future of Open Finance’ report have already launched some sort of app-based ‘open’ banking options, according to Curity.

Given the rapid pace of change in financial compliance, “an investment made in 2019 may not satisfy in 2022,” Ideskog said. More than 3 in 5 Curity survey respondents (62%) said that outdated or incompatible systems led them to admit they were concerned that their systems did not “support data sharing in a way that meets regulatory or consumer protection requirements.

Emerging privacy compliance also presents concerns.

“Privacy regulations such as GDPR, CCPA and others are the biggest concerns,” Ideskog said. “Ensuring compliance in large systems is difficult and the idea of ​​exposing more data simply introduces more risk than many are comfortable with.”

These findings coincide with the fourth anniversary of the launch of PSD2, which made Open Banking a regulatory requirement in the UK. The Curity study surveyed over 200 finance professionals involved in open banking worldwide.

According to the Open Banking Implementation Entity (OBIE), there are now 4.5 million regular open banking users. Open finance is expected to reach a market of over $43 billion by 2026, according to the report published by Allied Market Research.

Virtually all financial institutions (96%) believe consumer adoption is crucial to the future of open banking, according to the Curity study.

“Organizations need to communicate with customers in a simple and concise way about data privacy without relying on jargon to complicate matters, ensuring that customers feel confident in how their data is handled and managed in the part of the open banking process,” said Travis Spencer, CEO of Curity. in a prepared version. “Understanding the deployment of modern authentication methods is key to consumer adoption, according to more than half of respondents [56%].”

Given the emergence of “proven standards” in open finance for security, Ideskog said adopting this app-based approach “makes a lot of sense instead of inventing new security schemes for problems already solved. Applying these standards for their own use case allows the organization to be able to expose the APIs to third parties in the future, so it’s a double win.”

“Few organizations today are satisfied with single, single-use platforms,” ​​Ideskog added. “A comprehensive omnichannel strategy requires extensive reuse of backend components to be successful. And let’s be honest, as customers, we expect to be able to do the same thing on our phone as we do on our laptop. So, when creating an omnichannel strategy, you should look into FAPI [financial grade API] and related standards to secure your systems and prepare your organization for future openness. »