Fintech: Consent Management in Open Banking

For third-party financial service companies regulated by legal entities to access customers' bank transaction history securely, open banking requires their permission. Consumers can now use digital payments more easily thanks to the available banking model, which enables banks and other third parties to turn information into personalized financial advice or recommendations, such as recommending a savings account to maximize interest rates or making offers based on a customer's specific credit score. 

  

According to research, 51% of Americans are optimistic about the future of open banking. However, they still need to figure out how third parties gather their data and what information they genuinely want to give. According to 2019 research, 73% of consumers were concerned about how brands utilized their data, making consent management and compliance in open banking a hot topic. 

 
 

Financial institutions (FIs) and other Fintech startups must keep up with changing legislation for safeguarding client data in the face of escalating privacy expectations. Consent management is one of the most crucial elements of open banking rules. It asks for, obtains, and monitors bank customers' approval before third-party providers can gather or share their financial data. In this article, we'll take a micro-view of the function of consent management in open banking and discusses how taking a proactive stance in this process can help FIs and other parties comply with the expanding number of consumer privacy rules governing open banking.  

 
 

Consent Management's Key role in Open Banking 

 
 

Organizations must utilize rigorous identity verification techniques, such as online document validation and data verification checks, to legally gather and maintain customer information. In addition to allowing malicious actors to penetrate their networks, FIs that unduly carry out this operation risk betraying consumer confidence by disclosing sensitive client data to unauthorized third parties or businesses.  

  

Over 70% of consumers said financial institutions (FIs) should emphasize data protection more. More than 80% of respondents said they felt uncomfortable providing their financial information without knowing whether it was secure. Even though they previously provided their agreement, additional research found that only 30% of European banking clients felt comfortable disclosing financial information to outside suppliers. 

 
 

Consent management has other motivations besides just having empathy for the consumer. The regulation observance is yet another. Heavy fines may be imposed on organizations that still need a robust consent management system.  

 
 

For example, two Spanish banks were fined $11.5 million between 2020 and 2021 for violating the General Data Protection Regulation (GDPR) rules governing client data exchange.  

 
 

Simplifying banking compliance with Consent Management 

 
 

Consumers have stated a desire to opt out of data sharing, but research shows they frequently find it challenging. To enhance the customer experience and prevent compliance issues, businesses, especially those that operate internationally, need to pay more attention to opt-out options. For instance, European Union and Singapore companies must expressly allow customers to revoke consent at any moment to avoid fines from respective regulatory agencies. Proactively including an opt-out provision for open financial companies can set them apart. 

 
 

Another emerging trend for businesses to comply with data privacy laws is consent expiration, which is automatically revoked after a predetermined period. Some nations already have laws requiring this behavior.  

 
 

For instance, the Australian Prudential Regulation Authority (APRA) and Privacy Act require businesses to give customers the option to choose the sorts of data that can be shared and how long it can be held. 

 
 

The most technologically advanced organizations will have a strong customer authentication (SCA) process, which often does not just rely on password authentication but also helps streamline compliance and user experience.  

 
 

The most popular authentication technique today is still passwords. However, they are also the least efficient. Organizations like the FIDO Alliance are trying to make password less authorization the industry standard by using more secure identification techniques, such as biometric authentication. According to a FIDO survey, 32% of users think biometric authentication is the most secure type. 

 
 

Customers that choose to give their consent by using FIDO's transaction confirmation will digitally sign a hash. The option to store agreement hashes on a blockchain, which secures their storage with a responsible third party, is another tool available to organizations wishing to strengthen authentication security procedures.  

 
 

Although less widespread than once, this technique is essential as businesses scramble to establish credibility and enhance consumer satisfaction. Companies that use cutting-edge technologies, including biometric verification, can provide a wide range of new opportunities for digital contracts.  

 
 

These and other proactive methods of managing consent are expected to enhance available banking customization for the gain of both customers and FIs.