Open banking is a regulatory framework that allows financial institutions to share data with third-party service providers. This enables customers to have more control over their financial data and allows them to use it to compare financial products and services. Open banking also promotes competition and innovation in the financial sector.
Since its inception, usage has continued to mature and stabilize.
Its rapid adoption speaks to consumers’ desire for better control over their financial preferences and an improved digital customer experience.
More openness in financial data has made people worry more about how safe open banking APIs are.
Because they provide third parties with access to sensitive customer data, these factors combine to make them a target for cyberattacks. The data can be used to commit fraud or identity theft. Additionally, open banking APIs may not have the same security protections as traditional banking systems, making them more vulnerable to attack.
The European take on open banking
With the release of the PSD2 directive in the European Union, banks are now required to provide APIs that allow third-party providers access to customer account data.
The PSD2 directive is a set of regulations that member states of the European Union must implement in order to ensure the safety and security of electronic payments. The directive also wants to make the payments industry more competitive by letting new companies access information about customer accounts that banks and other payment service providers already have.
The Open Banking Implementation Entity (OBIE) in the UK is driving the open banking revolution. The major UK banks established the OBIE, which is in charge of implementing the UK’s Open Banking standard.
In the United States, open banking is currently evolving, with the Office of the Comptroller of the Currency (OCC) supporting responsible innovation in banking.
China’s open banking landscape is also expanding. The growth of fintech businesses and supportive regulatory policies are what are driving the development of open banking in China.
Let’s dive into best practices for API security in open banking.
Why is the open banking API a concern?
API security in open banking is a major concern because of the amount of data that is being shared. This data includes personal information, financial information, and account information. Since APIs are exposed to the internet, they need to have proper security controls in place to protect them from attack. Unfortunately, many open banking APIs lack these controls, leaving them vulnerable to attack.
Another issue with open banking APIs is that they often lack proper authentication and authorization mechanisms. This means that anyone who knows the URL of the API can access its data without having to go through any authentication process.
Add to that, open banking APIs allow third-party developers to access sensitive financial data. If this data is not properly secured, it could be accessed by unauthorized parties. This could lead to identity theft, financial fraud, and other malicious activities.
Finally, there is a risk that attackers will be able to take advantage of security flaws in open banking APIs. For example, an API may have a flaw that allows an attacker to inject malicious code into the API, which can then be used to take over the API or access sensitive data.
Best practices for API security in open banking
The first step in securing an API is to understand the risks. As we mentioned, open banking APIs expose data and functionality to third-party developers. This can create opportunities for malicious actors to access sensitive data or disrupt service. To mitigate these risks, banks need to understand what data and functionality are exposed through their APIs.
- Once the risks have been identified, banks can implement security controls to protect their data and systems. Common security controls for APIs include authentication, authorization, and rate limiting.
- Authentication is the process of verifying the identity of a user or device. This can be accomplished with a username and password, an access token, or another form of personal identification.
- Authorization is the process of verifying that a user or device has the permissions to access a specific API endpoint. This is typically done by checking for the presence of an access token.
- Rate limiting is a security control that limits the number of requests that can be made to an API endpoint in a given period of time. This helps prevent denial-of-service attacks and other types of abuse.
- Behavioral analysis: API security in open banking is about protecting the data that flows between different applications and systems. By understanding the behavior of these systems, we can identify and prevent security breaches. By analyzing the behavior of users, we can also detect and prevent fraudulent activity.
- Real-time visibility: real-time visibility into an API allows developers to see how the API is being used and identify any potential problems with its performance. This visibility can help developers optimize the API and ensure that it is meeting the needs of its users.
The future of open banking is perceived as very bright. With the backing of the EU and the UK government, it is anticipated that open banking will become the norm across Europe in due time. As more and more banks adopt open banking, the benefits are expected to only increase.
Even now, in 2023, open banking is still in its early stages, so there is no one-size-fits-all solution for API security. However, there are some best practices that banks can use to help ensure the security of their APIs.
Having a clear and well-defined security policy for APIs is important. This should include details on how authentication and authorization will be managed, as well as what data will be made available through the APIs.
Additionally, the implementation of rate limiting and other security measures should be considered to prevent abuse of APIs. Finally, it is important for APIs to be regularly monitored for potential security issues and for documentation to be kept up-to-date.
By following these best practices, it can be ensured that APIs are secure and compliant with the PSD2 directive. This will provide customers with confidence that their data is safe and secure when using open banking services.