As aspiring CA students understanding the risk with the audit is an essential part. The audit is the process in companies and banks. The open banking system is a modern concept that has been accepted in Australia, UK, and Europe. In recent days the DevOps technology brought the idea of developing the system which brings business and IT together. Banks offer their best services through API for the customers. Agile deployments bring coordination among the developers and administrators for improved security of the banking software system. The intelligence with API engineering is that it focuses on technical standards and the access of the user community.
As there is demand for competitive products and security frameworks in the banking platform large banks support the adoption of the open banking system. Countries from Asia, America, and the US have an interest in the open banking system but still, it is in the infancy stage due to controversies that arise from the security issues. The fundamental operations of the banks have taken a switch from additional services to digital services. Complete digitalization takes time to adopt from the customer’s viewpoint.
Data loss, money laundering, change of banking roles, and risks from transparency are the disadvantages of an open banking system. On the other hand, the advantages are knowledge about customer data, product data, account data, transactional data, fee charges, and easy to get loans. This blog poses questions about the risks with the audit because of the open audit system.
What are the two services that come under the open banking system?
Account information services and payment initiation services are the two services that come under the open banking system. PayPal is the financial service that provides a banking service of payment without the credentials of a bank account. PSD2 is the European regulation which is to simplify the payment service and increases third-party involvement. The two laws PSD2 and GDPR came into force in India in the year 2018. India is in the initial stage of creating new meaning to money. As per the statement of the RBI Deputy Governor, AA is the regulatory authority for the explicit consent of the customer. It takes care of the security, confidentiality, and integrity of financial data. The customer data should not be shared and retrieved without the consent of the customer. In a webinar conducted by TCS and RBI, the statement of the deputy governor of RBI states that RBI and NPCI produced a new system called UPI for the payment system. This system is already in use and enhances the innovation of the bankers. Banks are releasing their APIs for a better customer experience. For managing the complaints from digital transactions there is a separate scheme called OSDT. India is systematically implementing an open banking system. Let us shed light on this further.
Advantages of the open banking system
- Depending upon the infrastructure of the bank the API of the open banking system gets value. As the data is with the cloud there is increased security with the ultimate usage of data.
- It is easy to get loans as the financial status of the customer is transparent to the customer. It also reduces the bank charges and brings transparency to the bank charges levied.
- The transactional data from the bank tells the story about the best products and services profitable to the customer. This helps to decide on a savings account or credit card with low interest.
- The terms of the loans signify customer affordability. The transactional data help to know the rate of loan suitable for the customer.
- The customer data help the banks to detect fraud transitions in the initial stage itself. Instead of processing the transactions, banks take a new role as a customer relationship manager. It helps small start-up banks with customer retention.
- APIs are safe as they transfer the data to devices and not to humans. Physical transactions check the credentials, biometric details, and identifications but open banking transactions check the IP address of the devices which the customer uses for the bank transactions.
- In the traditional model also the data are interconnected as the customer uses multiple banks. The identification like pan card brings all the data of the customer in one place. But using the data at multiple places is the reason for the poor security, data breaches, hacking, and threats.
- An open banking system increases competition and security. But the question is that it takes time for a common man to understand the process of the open banking system.
Disadvantages of the open banking system
- As mentioned earlier the data loss, money laundering, change of banking roles, and risks from transparency are the disadvantages of an open banking system.
- The banking sector is called as service sector because they talk to the customer with face to face option. Because of the open banking system, the interpersonal relationship with the customers stays lacking.
- The cost of the open banking system is high as it is technology-oriented.
- Internet activities lead to fraudulent misbehaviors from the third party. The purpose of hacking data is to do marketing, to create financial products, to provide better financial service and illegal purposes.
- Hacking banking data is the primary goal of many hackers as it provides more profit. So, an open banking system worsens cyber security.
- GDPR and PSD2 are the data security laws prevailing in many countries. So, it is up to the consent of the customer to use the customer data. There is a risk of information asymmetry which makes the financial product or approach a failure.
In the year 1997, the statement of Bill Gates states that “We need the banking as a service but there is no need for banks”. An open banking system would change the operations of the banks and push them to the center of the ecosystem. This creates more demand for the open banking system.