Open banking is quickly changing the landscape of retail banking and lending. Open banking presents a host of advantages for your financial institution and your customers. It also brings a new set of cybersecurity challenges. You need to make sure that your financial institution is well-protected against fraud related to open banking applications.
Benefits of Open Banking Technology for Lending
Open banking offers benefits across the board. However, there are key benefits for lending in particular. Processing loan applications with open banking technology gives borrowers access to a more streamlined lending experience.
This technology also lets lenders verify borrower income faster and more effectively by automating the process of looking at transaction history rather than requiring borrowers to submit copies of bank statements for manual review.
With the vast number of data points accessed through open banking applications, you can easily tailor loans to your borrowers’ needs, giving you a competitive edge while also helping you minimize risk through the terms and conditions attached to each loan.
The introduction of more data points also allows you to assess the risk of borrowers with limited credit histories. Additionally, it allows you to differentiate between lenders who are likely to repay loans and those who are likely to default. Ultimately, open banking allows you to grant more loans and increase revenue without facing a heightened risk of default.
Minimizing the Risk of Fraud From Open Banking Applications
While dealing with open banking applications, there will be a certain risk of banking fraud involved. Keep the following tips in mind to minimize your institution’s risk of fraud.
1. Transition From On-Premise Security Hardware to Cloud-Based Solutions
Housing security software in on-premise hardware increases infrastructure and IT costs. It also mires your bank in outdated security software. Your financial institutions should move to streaming data in a cloud-based environment instead.
Moving to the cloud and adopting Software as a Service allows your bank to scan for vulnerabilities faster and more effectively. It can also reduce hardware and IT costs.
Additionally, your SaaS provider automatically scans, updates and patches your security software as needed. Because of these constant updates, your cybersecurity framework is poised to deal with potential vulnerabilities.
2. Vet Your Partners
When choosing partners for open banking applications to use in-house, you need to be aware of their efforts to reduce and be proactive to cybercrime. This includes researching their approach to open banking fraud.
Throughout your relationship, continuously monitor your open application partners and implement API controls. That way, you know that your partners are working with the best interest of your customers and your financial institution in mind.
3. Leverage Real-Time Analytics to Identify Suspicious Behavior
Real-time analysis looks at multiple data points to detect abnormal third-party requests, transactions or API calls. For example, dynamic biometrics look at a loan applicant’s voice commands, keystrokes and mouse movements to find irregular patterns. Make sure that you’re leveraging these analytics to protect your financial institution.
4. Turn to Machine-Learning Tools
Unfortunately, legacy anti-fraud systems do not stand up to the new challenges and risks presented by open banking applications. You need systems that use machine learning or other types of artificial intelligence to monitor transactions and flag potential cases of fraud.
This technology can reduce false-positives and save time for employees. It can also reduce fraud and detect cybersecurity threats before they occur.
5. Create Clear Data Governance Policies
When you’re storing, sharing or transmitting sensitive customer data, you need a clear data governance policy. Your policy should ensure you are meeting legal and industry regulations and protecting data as effectively as you do any other asset.
Ideally, you need involvement from your whole leadership team and quality training for your employees. You also need to monitor key metrics to confirm that your data has not been compromised nor your policies ignored.
Protect Your Financial Institution From Open Application Fraud
Open banking applications have the potential to streamline your lending process and increase revenue. If you’re using this technology in your lending process, you need high quality anti-fraud tools in place. This is especially true if you have a relatively small financial institution.
Unfortunately, small banks and credit unions tend to be hit the hardest with small and medium business lending fraud. These lenders lose between 4.5% and 5.8% of their revenue to this type of fraud. Banks with over $10 billion in assets only lose about 2.9%. Regardless of your institution’s size, you need fraud protection you can trust.