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How Open Banking Keeps Data Secure When Using IoT Devices

Open banking opens up new possibilities for financial and technical services, making consumer data available to businesses in unprecedented ways. For example, third-party service providers can now access bank account information, account balances, customer financial history, and more through bank links and customer consent.

Growth and strengthening through close collaboration

The Internet of Things (IoT) has the potential to grow and enhance through close collaboration with open banking technology, providing people with additional benefits and uses.

Benefits include consumer access to financial data such as bank balances via wearable technology and AI assistants, automated payments requested via IoT devices, more detailed credit checks, easier insurance claims. Includes enabling billing and more.

Data security and cyber security in open banking

Consumers are usually concerned and skeptical about new FinTech innovations in terms of data security and cybersecurity. Many consumers believe that traditional financial institutions are better equipped to protect their data than FinTech.

This is due to long-standing continuous use and a lack of a deep understanding of what terms such as “open banking” mean and what security measures are in place to protect consumers. It may be the cause.

Open banking is more secure than ever, extending its data security practices and policies to various case studies in the IoT world.

Current data protection practices in the IoT

With the rise of IoT and intelligent technology, customers’ user experiences are consistently improved through seamless day-to-day operations that meet their needs. However, from a security perspective, the IoT has received a lot of criticism about its built-in security features, often relying on the security of the network to which engineers connect.

Data collected, stored, and shared by IoT devices must be protected under the General Data Protection Regulation (GDPR). The GDPR is a legal framework that regulates guidelines on how data is collected and protected.

It is important for IoT application providers to adopt GDPR compliant data protection and security measures to secure their data and prevent embedded sensors from collecting more data than necessary.

IoT technology can be maliciously targeted

Like any other connectable device, IoT technology can be maliciously targeted, exploited, and exploited. For example, in 2020, a study conducted by Palo Alto Networks found that 98% of all recorded IoT data traffic was unencrypted.

A 2021 global survey by IT security company Trend Micro found that 86% of IT professionals believe that organizations can do more to educate them about IoT security threats.

Security must be at the forefront of users and organizations in predicting more than 30 billion established IoT connections by 2025.

Open banking protects certain parts of your data

While open banking can protect only certain parts of the data collected by IoT devices with maximum certainty, implementing open banking policies and technologies protects financial and payment-related information first and foremost. increase.

With the rise of smart payments, automated purchases, and direct links to banks, finance is arguably a fundamental aspect of the IoT.

How to keep open banking safe

Security is one of the main pillars of open banking and is as secure as traditional banks, despite security concerns.

Open banking API endpoints are actually developed by banks and rigorously tested to ensure maximum data security.

Open banking also empowers consumers themselves and allows them to share data only with third parties of their choice. Eligible banks also have their own security measures, providing multi-layered security barriers.

Payment Services Directive 2 (PSD2)

The Payment Services Directive 2 (PSD2), the regulation behind the creation of open banking, was partially launched to reestablish the security requirements of the payment sector. Strong customer authentication (SCA), dynamic linking requirements, and consent management have been introduced to allow only authorized users to connect to sensitive data.

Consent management is required when banks and other businesses require customers to consent to the collection and sharing of personal data.

SCA certification process

SCA refers to the authentication process that requires account owners to prove their identity using two or more security elements that are divided into three categories:

  • knowledge (What only the owner knows);
  • What to bring (Physically held only by the owner);
  • Uniqueness (Things related to user-specific attributes such as fingerprints and voice recognition).

Dynamic link code

Similarly, dynamic link establishes a user’s identity by requesting a new unique code for each new transaction.

Unlike suspicious practices such as screen scraping (the process of copying information from the screen rather than securely connecting to the actual platform being displayed), open banking requires users to share their login details with someone. there is no. The above method is an executable option for IDs. inspection.

How IoT Devices Benefit from Open Banking Security Measures

All IoT devices are aimed at convenience and consistent data sharing, but some sensitive information, such as financial data, should not be easily accessible outside the agreed range.

Since unauthorized access to the device is one of the main concerns, it is important to implement an open banking identity verification process backed by PSD2 such as SCA when setting up automatic payments and new transactions. .. This allows only authorized users to establish future payments.

The downside is that the simplicity is reduced and the ease of use of the IoT is very much loved. Still, regular IoT payments require the same level of security as any other financial app.

The data collected about you can help you further protect you from fraud.

By securely connecting to your bank account, you can collect and analyze consumer data to create a portfolio of regular spending patterns, most commonly used shopping categories, and gambling and overspending habits.

You can then use this client file to analyze whether the current transaction is characteristic of normal spending behavior. If the new transaction does not fit the general customer profile, you can notify the system and perform additional checks and identification processes.

Data encryption

Many IoT devices do not encrypt traffic, but open banking is the opposite. By implementing various security measures, we will do everything possible to ensure that the API is protected.

The combination of strong identification verification and data analysis establishes a protection system. The IoT technology itself may be vulnerable to some attacks, but the financial data and accounts connected to the device will continue to be protected.

This protection limits fraudulent payments, login attempts, and access to bank data.

IoT and open banking for the future

Customer data protection is at the heart of PSD2 and open banking, enabling customers to manage and maintain their financial information. Therefore, security is essential for sensitive financial information, and reliable security measures are a top priority.

Open banking and IoT

Open banking and the Internet of Things technology will inevitably be inextricably linked in the near future. If there are security concerns about the IoT, open banking can help provide answers and necessary safety nets to protect users when they access their finances on the go.

As technology continues to evolve and thrive, both of these options in open banking connect to improve and improve the lives of users around the world, creating more ways to generate myriad innovations.

Image credit: Provided by the author. thank you very much!

Rolands Mesters

Nordigen CEO and Co-Founder

Rolands Mesters is the CEO and co-founder of Nordigen, the first free open banking API that offers the widest range of European banking connections. With a passion for fintech and advocating innovation through free open banking, Laurons regularly shares industry insights and is featured by top media.

How Open Banking Keeps Data Secure When Using IoT Devices

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