The new insights unwrapped by Open Banking are bringing fundamental changes to the payment and financial services industry. With its core objective of fuelling innovation in the market, its arrival is improving both the security of payments and the protection of customers.
It appears Open Banking data could not have come at a better time, as festive purchases are ramping up, while at the same time consumers are showing growing concerns for the security of their personal data online.
To protect the security of electronic payments, the second Payment Services Directive (PSD2) has introduced reinforced authentication systems for users, commonly known as Strong Customer Authentication (SCA), which subjects authentications to at least two of three critical factors.
Typically, these include something only the client knows (such as an access PIN), something only the client has (for instance, the payment device), and something that the client is (such as facial recognition).
With these three elements serving as prerequisites to shopping online, consumers can enjoy accurate account authentication and validation, and avoid strangers using their details to fund their own holiday spend.
Of course, fraud protection benefits financial providers as well as consumers. Thanks to the richer data sets and insights into spending behaviour that Open Banking unlocks, banks and credit providers can enjoy being able to make more accurate affordability decisions.
Within the UK alone, Experian is already catering to this need by handling over 25 million data requests every month, with demand among EMEA consumers fast catching up. And, by applying categorisation and machine learning to customer transaction data it is possible to improve accuracy by over 40%, enabling better quality decision-making.
Experian’s approach to Open Banking is also safeguarding consumers from fraud and ID theft. Here, machine learning is a critical component of Experian’s fraud analytics for its ability to flag suspicious transactions much faster. One European lender has already seen a 12% uptick in detected fraud, which has helped shield nearly €40 million in potential customer losses.
So, will Open Banking replace credit scores? While PSD2 is revolutionising affordability analysis, it is unlikely to mean the end of credit scores.
Credit scores remain useful in indicating an individual’s credit risk, based on their historic management of credit. As a complementary service, bank transactions offer a benchmark of a customer’s affordability risk, based on their tracked income and expenditure.
Today, Open Banking data contributes more than new insights. In this season of bringing people together, this innovative technology is empowering banks and service providers to develop more transparent and secure relationships with their customers.
To discover how Open Banking can protect both your business and your customers, simply click here.