The core of Open Banking was provided by the introduction of PSD2 which was designed to drive innovation and increase competition in financial services by introducing open APIs to access account data and payment initiation. Account data can be used to improve fraud prevention and risk management. Bank transactions can be used to classify customers and detect suspicious activities quickly before the damage is made, thus making payments safer or improving the assessment of business risks.
SEPA Direct Debit (SDD) allows recurring payments across SEPA countries. Customers provide their bank account numbers for periodic debits; however, fraudsters can misuse this method by using someone else’s IBAN, leading to unauthorised debits. The real account holder might notice the issue later, cancelling the payment and causing losses for the merchant.
IBAN validation within KYC (Know Your Customer) and KYB (Know Your Business) protocols can verify account holder details, ensuring payments are correctly directed. This reduces fraud, safeguards against financial losses, and maintains trust with clients.
Managing financial risk is essential for merchants that provide goods and services before payment, and in lending or leasing businesses. Providers need to understand a consumer’s financial situation to accurately assess and manage associated risks, and Open Banking provides crucial financial data for this.
Correct IBAN usage for upcoming payments, mostly credit transfers, is vital to avoid financial losses. With Open Banking, businesses access real-time data to better understand clients’ financial health, allowing them to make informed, data-driven decisions. This minimises the risk of defaults, improves the accuracy of risk evaluations, and upgrades the financial products offering while maintaining client trust.
Account Information Services (AIS) enable payment institutions to access and retrieve customers’ financial data securely and in real time, with their explicit consent. This includes transaction histories and IBAN. AIS play an integral role in providing customised financial insights and improved customer experiences.
To ensure this data is accessed securely, Strong Customer Authentication (SCA) is applied, requiring multi-factor authentication to verify the user’s identity. Access to data involves a combination of something the customer knows (i.e. a password), something they have (i.e. a smartphone), and something to prove who they are (i.e. a fingerprint), providing robust security against unauthorised access.
Moreover, effective consent management under GDPR is key. Customers are clearly informed about how their data will be used, and they provide clear, explicit consent. This transparency not only complies with GDPR but also improves trust, as customers feel more secure knowing their data is handled responsibly.
With Open Banking, accurate IBAN checks are essential for preventing fraud and ensuring compliance. Financial institutions and businesses must accurately map IBANs to the corresponding account holder data to ensure that payments are correctly directed. If this data isn’t provided, the responsibility should fall on the entity managing the account.
For example, when a bank reviews credit applications, it uses IBAN checks to verify the applicant’s bank details. By ensuring the IBAN matches the account holder’s information, the bank verifies that the credit funds are sent to the right person, safeguarding against fraud.
Real-time credit scoring is key in Open Banking for accurate financial credit assessments. For example, a bank can use credit scoring to check a credit applicant’s ability to repay a loan. By accessing the applicant’s financial data with their permission, the bank gets a clear picture of their finances, reducing the risk of defaults. This process includes strong authentication, onboarding KYC, and e-signature to ensure security and compliance. With quicker approvals and automated data entry, customers have a smoother experience, while banks make better decisions with credit assessments.
The global adoption of Open Banking by proactive players is crucial for fighting fraud. For businesses, Open Banking offers several advantages. Your customers also benefit from secure digital registration, with no manual paperwork and instant verification.
Worldline’s expertise and solutions in Open Banking improve security, reduce fraud, and ensure compliance with regulatory standards, benefiting both businesses and consumers.
IBAN verification and shared data ensure that subscribers own the provided account and secure their subscriptions. Additionally, our advanced Open Banking solution in credit scoring allows customers to quickly and accurately assess their consumers’ creditworthiness, helping them to make better-informed decisions with confidence.
This editorial piece was first published in The Paypers' Open Finance Report 2024, the latest comprehensive market overview and analysis focusing on the key players and products within the Open Banking and Open Finance ecosystem. Download the full report to discover more insightful content.
Henrik Hodam has been working for Worldline since 2001 and has experience in mobile and digital, as well as in the payments, banking, and telecom industries. As Senior Product Manager in Open Banking, Henrik is responsible for Account-to-Account Payments, Verification of Payee, and SEPA Proxy Lookup service.
Worldline [Euronext: WLN] helps businesses of all shapes and sizes to accelerate their growth journey – quickly, simply, and securely. With advanced payments technology, local expertise, and solutions customised for hundreds of markets and industries, Worldline powers the growth of over one million businesses around the world. Worldline generated EUR 4.6 billion in revenue in 2023.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now