Reduce security risks with connected banking

Real-Time Payments February 2022 - Find out how connected banking can help banks and fintechs deliver improved security and customer experience

The pandemic has accelerated the adoption of digital banking by American consumers, giving rise to a growing segment of customers who now prefer to forego physical bank branches altogether. A 2021 survey of 6,000 consumers found that these so-called digital natives — those who prefer to do their banking only through smartphones and other online portals and devices — accounted for around 32% of consumers, representing a considerable increase compared to 26% a year earlier.

Consumers who use one digital tool tend to use another, and the proliferation of digital channels for payments and money management means that many consumers are linking their bank accounts to other platforms. These links can be for mobile payments, budget tracking or investments, with 58% of consumers saying their bank accounts are linked to services such as Venmo or Apple Pay. Consumers establish these logins primarily for their convenience, but there are downsides, as login accounts can expose consumer data to fraud and other security risks. According to the study, almost a third of consumers with linked bank accounts have been involved in data breaches, possibly due to those links. Yet they are undeterred, with nearly two-thirds keeping their bank accounts connected to third-party apps.

Many consumers are calling for greater transparency and control over their data, and financial institutions (FIs) are championing consumers. However, meeting the needs of financial customers requires the cooperation of all parties involved through an ongoing industry collaboration known as Connected Banking. This month, PYMNTS looks at how connected banking improves security and the customer experience, helping FIs better serve their customers and creating new opportunities for innovation.

An opportunity to increase security

Incidents of fraud and information theft in digital transactions are approaching a critical point. A 2021 survey of 2,000 consumers in the US and UK found that in just one year, 20% more consumers said their card details had been stolen and used to make fraudulent payments, 60% more said they had a card stolen and misused, and more than twice as many said they opened a card in their name using stolen information. While 79% said they had increased their online shopping, around two-thirds said they felt more at risk doing so. Yet 20% more consumers than in 2020 said the risk of fraud was worth it for the convenience of digital transactions, illustrating consumers’ growing reliance on their digital lifestyle.

In fact, three-quarters of app users polled in a recent survey believed that the information they share with platforms is both private and secure, but 80% were unaware that apps use third-party vendors to collect users’ financial information. Less than a quarter knew that data aggregators could sell personal data to third parties for marketing, research and other purposes. Nearly three-quarters of app users were unaware that apps had access to their bank account usernames and passwords, and 78% were unaware that aggregators frequently access their personal data even after shutdown or shutdown. deleting the app.

This widespread lack of consumer awareness is forcing FIs to improve security and inform customers of the steps taken to protect their data. The Clearinghouse has worked with FIs to advocate for improved technology standards and infrastructure as well as risk management requirements and laws to help ensure clients are protected from digital dangers. Elements of the Connected Banking Framework include mechanisms for consumers to authorize and control the data they share, as well as support for industry-wide migration to application programming interfaces (API) to provide consumers with better security and privacy. Other elements include establishing a model legal contract between banks and FinTechs, common standards for data sharing and security, and a common process for determining the safety and security of third-party applications.

This will be increasingly important this year, as 2021 was considered one of the worst years on record for cybersecurity, according to a report. More than half of organizations expect to see an increase in the number of reportable fraud incidents this year, and to combat this, 69% plan to increase cybersecurity spending in 2022.

As the economy becomes increasingly digital, with fewer physical protections in place, FIs will need to work closely together to ensure that consumers maintain the trust and security they need to continue to believe that their financial information is safe. The continued growth of the digital economy depends on it.

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