TL;DR
Open banking offers a secure framework for businesses and consumers, with robust measures like encryption, API security, and Strong Customer Authentication (SCA) to protect data and transactions.
For businesses, real-time fraud detection and anti-money laundering protocols ensure compliance and mitigate risk, while regular audits identify vulnerabilities.
For consumers, open banking provides enhanced control over data sharing, with consent-based access, multi-factor authentication, and tokenization.
Open banking systems also undergo stringent regulatory oversight, ensuring that only approved providers can access sensitive information.
Risks, such as data breaches or third-party access, are mitigated through encryption and regulatory safeguards.
Is open banking safe? In short, yes. Open banking is generally safe when delivered by regulated providers and used as intended. It is built on strict regulatory frameworks, secure APIs, and explicit user consent, all designed to protect financial data and prevent unauthorized access.
Open banking does not require users to share their bank login details with third parties. Instead, access is granted through encrypted connections and Strong Customer Authentication (SCA), allowing both businesses and consumers to maintain control over how their financial information is used.
In this article, we explain why open banking is considered safe, the security measures that protect businesses and consumers, and the potential risks to be aware of. If you’re new to the concept, you can also read our comprehensive explainer on open banking to learn how it works.
Why Open Banking Is Considered Safe
Open banking is considered safe because it operates within a regulated framework designed to protect financial data, prevent unauthorized access, and give users full control over how their information is shared. Rather than relying on legacy methods, open banking introduces standardized, secure processes that are enforced across banks and licensed providers.
Regulation
Open banking is governed by strict financial regulations, such as PSD2 in the European Union and the UK Open Banking framework. These regulations require banks and third-party providers to meet high security, operational, and compliance standards.
Only licensed and regulated providers are permitted to access open banking APIs, and they are subject to ongoing supervision by financial authorities. This regulatory oversight ensures that open banking services operate within clearly defined rules and accountability structures.
Consent
Consent is central to open banking security. Data can only be accessed with explicit, informed approval from the user, and only for the specific purpose agreed. Users are shown exactly what data will be shared, for how long, and with which provider. Access can be revoked at any time, immediately cutting off data sharing. Without consent, no data can be accessed.
No Password Sharing
Open banking does not involve sharing bank login credentials with third parties. Users authenticate directly with their bank using secure authentication methods, such as Strong Customer Authentication. This approach removes one of the biggest risks of older data-sharing methods, where passwords were stored or reused across services. Access is granted through secure, token-based connections rather than shared credentials.
Accountability
Open banking introduces clear accountability across all parties involved. Banks remain responsible for securing customer accounts, while third-party providers are responsible for how they access and use data. If something goes wrong, regulatory frameworks define liability and dispute processes, ensuring users are protected and issues can be resolved transparently. This shared accountability model helps maintain trust across the open banking ecosystem.
Is Open Banking Safe for Businesses?
Yes, open banking is safe for businesses when implemented through regulated providers. Because it operates within a secure and regulated framework, it helps businesses reduce fraud risk, improve compliance, and protect sensitive financial data.
For businesses, the security benefits of open banking translate into clear operational advantages. These include lower exposure to unauthorised transactions, improved auditability for regulatory and compliance requirements, and reduced reliance on insecure legacy methods such as screen scraping or credential storage.
Ongoing regulatory oversight, standardised infrastructure, and regular security testing also improve operational resilience, helping businesses scale securely while maintaining trust with customers and partners.
Is Open Banking Safe For Consumers?
Yes, open banking is considered safe for consumers when used through regulated and licensed providers. It is designed to give individuals more control over their financial data without requiring them to share sensitive login credentials.
For consumers, this means they decide what information is shared, with whom, and for how long. Authentication happens directly with the bank, not with third-party applications, and access can be reviewed or revoked at any time.
Clear transparency around data usage and strict regulatory requirements ensure consumers remain in control of their financial information while benefiting from secure open banking services.
Open Banking Security
Open banking's security framework is built on several key pillars:
Strong Customer Authentication (SCA)
SCA is a multi-factor authentication method combining at least two elements: something the user knows, has, or is. This significantly reduces the risk of unauthorized access.
API Security
Secure APIs form the backbone of open banking, featuring encryption, digital certificates, and authenticated access management controls to protect data during transmission and processing.
Data Minimisation and Purpose Limitation
These principles ensure that only necessary data is collected and used solely for its intended purpose, reducing the risk of data misuse or exposure.
Encryption
Advanced encryption techniques protect data both in transit and at rest, rendering it unreadable to unauthorized parties even in the event of a breach.
Explicit Consent
Users must provide clear, informed consent before any data sharing occurs, ensuring transparency and user control over their financial information.
Risks of Open Banking
While open banking is designed with security in mind, it's important to acknowledge potential risks:
Risk of Data Breaches
The increased number of access points in open banking expands the potential attack surface for cybercriminals. However, robust security measures and encryption protocols significantly mitigate this risk.
Risk of Third-Party Access
Granting access to third-party providers introduces an element of risk outside the bank's direct control. Stringent vetting processes and regulatory oversight help manage this risk effectively.
FAQs
Is Open Banking Safe?
Yes, open banking is generally considered safe. It employs advanced security measures, strict regulations, and user consent protocols to protect financial data and transactions.
What Information Will Open Banking Companies Have Access To?
Open banking companies can access the specific financial information you consent to share, such as account balances and transaction history. They cannot access data beyond what you explicitly authorize.
What Is Strong Customer Authentication?
Strong Customer Authentication is a security protocol that requires at least two independent authentication factors to verify a user's identity, significantly enhancing the security of financial transactions.
Sources:
Sources last checked on: 21 January 2025
Additional Resources:
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Ivy GmbH or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional. We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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