Is open banking safe?

The introduction of new technologies often gives rise to questions about safety, especially when they involve sharing sensitive information online. With open banking set to become the standard for how we access our financial data and make payments, it’s worth taking some time to answer an obvious question: Is open banking safe?

Put simply, yes. Open banking is just as safe as any other online banking service. All open banking providers in Europe are licensed and strictly regulated, and open banking data and payments are secured behind layers of authentication and encryption.

But let’s take a more detailed look at what open banking is, how it affects businesses and consumers, and how it ensures security.

Open banking refers to financial infrastructure that creates secure connections between banks and third-party providers, allowing them to access customer data and provide account-to-account payments.

When the EU introduced open banking regulations in 2018, its goal was to make payments more efficient, encourage competition and spur innovation by giving consumers full control over their own financial data. Today, that vision is turning into reality with a new generation of services, such as real-time payments, budgeting tools, and more.

The “open” part of open banking is enabled by APIs (or application programming interfaces), which banks in Europe are required to make available to regulated third parties. APIs let computer programs talk to each other in a secure and controlled manner, and are a fundamental building block of all internet services, from social media to stock trading.

Before PSD2 created a framework for APIs, third parties accessed banking data through “screen scraping”, which required customers to hand over their login credentials and relied on trust rather than regulation. Screen scraping is now prohibited in the EU and the UK.

Security is understandably a top concern for businesses, which handle sensitive customer information and are required to make sure that this data is protected against theft, fraud, and other types of cyberattacks.

Such concerns were front of mind when the EU was drafting its open banking rules. Indeed, improving the security of online payments and financial data is a cornerstone of open banking.

Licensed open banking platforms such as Klarna Kosma use bank-level encryption and two-factor authentication to secure customer data. Furthermore, they comply with the strictest regulations and standards in Europe, including the EU's Revised Payment Services Directive (PSD2).

Security is an important consideration when choosing an open banking partner, but there are also many other factors to consider (see below).

Consumers should always be careful when sharing banking data with third parties. That’s why open banking regulations exist. Authorized open banking providers use secure platforms and systems, encrypt sensitive data, and protect access to your information with approved authentication and authorization processes.

Moreover, the customer is always in control. Access is granted using bank-level security, such as biometric checks, and logins/passwords are never shared. Customers choose what data they want to provide and with whom, and they can choose to revoke access to third-parties at any time. Indeed, open banking rules require that providers make it as simple as possible to remove consent — it can typically be completed with just a single click or tap.

Account-to-account security also provides added protection against online data breaches compared to using credit or debit cards. With open banking, merchants never have access to your banking details.

Open banking is a safe and secure way to manage your finances and supercharge your business, but it's important to choose the right provider. With Klarna Kosma, you can enjoy the benefits of open banking without having to worry about the security of your financial data.

If you're looking for a safe and secure way to manage your finances, consider open banking with Klarna Kosma. We’re uniquely positioned in the market to understand all sides of the value chain. We’ve been in the open banking business since 2005, we have strong relationships with merchants through Klarna, and we’re also a bank in our own right. And we take pride in delivering a world-class user experience based on the feedback we receive from our huge customer base.

Our commitment to security and our focus on providing customers with control over their financial data makes us a top choice for open banking services.