The new challenges of fraud and security in open banking

August 10, 2022

A report published by UK Finance has highlighted how cybercriminals have shifted their focus toward consumers and their personal and financial data. Losses to authorised push payment fraud, where a person makes a transfer to an insecure account, exceeded card fraud for the first time last year. UK Finance recorded a 71% increase in this type of fraud, with losses exceeding £355 million, compared to £261 million from card crime.

Open Banking Excellence (OBE) focuses on knowledge sharing, new thinking and collaboration within the financial services industry. Fraud is predicted to continue rising and is something the finance industry will need to face head-on. Michael Huffman, the Director of Fraud at GoCardless, explains that we have shifted into a challenging economic environment that will cause individuals who wouldn’t have considered fraud as a possible mechanism to increase revenue. Huffman believes lots of data and information can be made available to provide customers and clients with added security.

Mike Haley, the CEO of UK-based fraud prevention agency Cifas, explained that identity fraud has increased by nearly 40% in the first five months of this year, and false applications for bank accounts have increased by 60%. With Open Banking, there are opportunities to reduce fraud through mechanisms like monitoring bank account information to verify customer identities.

Open Banking has been a great success in the UK, but Europe has adopted a range of specifications. There isn’t a standard testing process to see how well it’s implemented, so industry experts believe the regulatory system needs to expand as we move toward Open Finance.
With APIs, encrypted data transfer and reduced information sharing, security lies at the core of Open Banking. As the finance ecosystem expands, its inevitable fraudsters will create new challenges for the finance industry. Industry analysts emphasise that while open banking hasn’t created new fraud typologies, it has increased what is referred to as the attack surface i.e. the volume of entry points for fraudsters to access information to initiate payments or intercept personal information.

In the UK, we place a lot of emphasis on creating a trusted framework. Implementing an Open Banking standard is vital to the protections put in place. If done correctly, Open Banking can provide several ways to fight fraud, but there’s another important area to consider – due diligence by the customer.

Over the last year, there has been a shift from unauthorised card activity to APP scams. Industry experts believe this is partly due to the success of security in design, meaning the weakest area in the system lies with the customer and an individual pushing out a payment.
Customers must be cautious because you can’t legislate against a lack of attention. There are layers of protection, but ultimately individuals need to take control, particularly with payments.

Despite these challenges, the industry is in a strong place, and Open Banking continues to develop a resilient security model and a trust framework for its customers. Industry experts emphasise that when it comes to fraud and financial crime, there should be no competition. It should be about sharing data and intelligence and supporting by educating customers.

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