By Feike Hacquebord, Robert McArdle, Fernando Mercês, and David Sancho
As more industries adapt to cater to the increasingly mobile market, the financial industry is the latest to experience a shake-up. The Revised Payment Service Directive (PSD2) – also known as Open Banking – is a new set of rules for the European Union (EU) that’s expected to affect the global financial industry. The PSD2, implemented on September 14, 2019, was designed to replace the 2007 Payment Service Directive in the EU, but banks in the US and Asia have started making comparable adjustments to accommodate their customers as well.
Open Banking aims to inspire innovation and make banking transactions in the EU more cost-efficient, easier, and more secure. This entails banks opening their application programming interfaces (API) to financial technology (FinTech) companies to accommodate additional services such as financial recommendations and payment automation. Bank customers will have to give their explicit consent to these new companies to access their respective banking data.
Figure 1. With PSD2, new FinTech companies will launch new apps to aggregate banking data from multiple accounts.
PSD2 aims to make online banking more secure. To this end, PSD2 mandates two-factor authentication and “Dynamic Linking,” wherein an authentication code for each transaction is specific to the amount and the recipient. Additionally, banks in the UK are developing a standard called Financial grade API (FAPI), an extra layer of security in the authentication processes between new FinTech companies and banks.
This research paper looks into the PSD2-readiness of FinTech companies and banks from a security perspective and the new risks that could emerge when PSD2 comes into effect. Open Banking places customers’ banking information into the hands of ..
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