Your money and your personal data are almost always at risk. However, if you live in the EU or the UK, this is also a time when these things are very well protected. Thanks to the great and productive three-pronged collaboration between legislators, banks, and software developers, the EU and the UK have implemented PSD2 solutions to make money management safer and smoother. Here’s how open banking and these solutions make digital banking safer.
Grueling licensing processes
In order to access data and be able to manage sensitive financial information, a service provider or a financial institution must pass a very challenging and multi-step licensing process in their respective country. There are many safety checks and protective measures in place which try to prevent the introduction of unfinished tools with vulnerability. In order to get PSD2 licensed, a service provider must have really invested both time and effort of competent people.
This is relevant to payment initiation service providers (PISPs), account information service providers (AISPs) as well as other involved third-party providers (TPPs).
The foundation of secure & open banking – SCA
At the very core of PSD2 and open banking, there’s a three-letter abbreviation that is of the utmost importance to the success and smooth implementation of such solutions. It’s SCA. The abbreviation stands for Strong Customer Authentication. The term should and could be associated with the likes of 2FA and MFA (Two-factor and Multi-factor authentication, respectively). It’s pretty much the same thing, only it specifically outlines the three essential pillars of customer authentication for finance and banking purposes.
There are three ways to authenticate a customer. In order for the authentication to be successful under SCA, they must be identified in 2 out of 3 available ways. These factors of authentication are independent of one another and compromising one, shouldn’t result in the compromise of another, meaning stability and security.
These factors are
- Inheritance – biometric data
- Possession – a phone, code generator, etc.
- Knowledge – passwords, PIN codes, etc.
How PSD2 solutions prevent fraud and theft
These PSD2 services (usually called open banking APIs) work under very clear restrictions and constrictions. They are only allowed to gather and process information that they’re licensed to. Even with consent, the technology isn’t capable and the bank wouldn’t permit any access to data that’s unrelated to the spectrum of open banking. You can read more about these solutions here – https://nordigen.com/en/psd2/solutions.
There are clearly defined responsibilities and rights for these third-party PSD2 service providers. They can’t just overstep boundaries which ensures the best interest of regular consumers.
In the past, often times, the most vulnerable parts of digital banking were the fraudulent links between payment gateways and bank websites that were able to intercept relevant financial data. Right now, thanks to open banking, the potential for fraudsters and cybercriminals is much smaller, because they have to do much more preparation in order to even penetrate the surface of the security of this open banking mechanism. By delegating responsibilities to the parties involved, legislators have created a system that is able to protect the interests and personal data of European consumers.