The Ultimate Guide to Open Banking and The Role of Mobile Apps - Open Banking and APIs | Appknox

A Comprehensive Guide to Understanding Open Banking and APIs

Globally, financial institutions are forced to reinvent themselves as the world goes through major structural and macroeconomic shifts. This forced change, combined with increased customer demand for tailored banking services, has led to the explosion of the open banking market.

The value of open banking transactions reached $57 billion in 2023 and is expected to reach $330 billion by 2027. Besides, open banking API calls will also increase to 580 billion in 2027.

While these statistics boast unprecedented success for open banking, McKinsey states that only 10% of its potential has been explored. The transition of the financial services industry from siloed operations to an interconnected finance and technology ecosystem is only recent.

What is open banking?

Open banking uses an open banking API to connect third-party products with financial institutions to manage finances. 

Imagine you have a savings account in one bank and a checking account in another. You must log in to their portal whenever you need to access either. You’ll need two tabs to access each bank’s portal to compare finances across banks. With an open banking API and a third-party app, you can view all details in one place. 

There are a lot of open banking models in the market; however, two key examples are: 

  1. India Stack-powered Unified Payments Interface (UPI) enables third-party-initiated payments (PIS) through a centralized open banking API framework. 
  2. Open Banking in the EU and the UK has been implemented via decentralized open banking API standards. 

Open banking in the GCC

Open banking has become increasingly popular with consumers and financial institutions alike. While Europe and the US were among the first to adopt it on a large scale, the GCC region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) is catching up, fueled by regulatory changes. 

For instance, Bahrain has launched a digital sandbox where open banking providers can test new ideas, ensuring they are secure and fit for the GCC market. 

Similarly, the Saudi Central Bank (SAMA) launched its open banking framework in November 2022, followed by its open banking lab in 2023. 

In the UAE, the Central Bank (CBUAE)’s Financial Infrastructure Transformation Programme has been put forth to fully implement open finance by 2026

In 2022, Qatar National Bank (QNB) launched a dedicated Open Banking Platform enabling customers and partners to access their APIs. 

The commitment of the various countries in the GCC region to open banking and technological innovation is commendable. The plans and programs mentioned above highlight their proactive stance in creating a conducive environment for open banking in the GCC countries to flourish.

Benefits of open banking

Open banking is more than just a fad positioned to revolutionize the financial services industry; it brings an era of openness, innovation, and transparency. Open banking bridges geographical limitations and streamlines international transactions. 

Financial institutions can now seamlessly facilitate multi-currency transactions without being held back by increased transaction fees, longer processing time, and changing exchange rates with open banking.

Enhanced user experience

Open banking lets users access services directly from their preferred apps, giving them a more integrated experience. 

Comprehensive financial insights

Users can get a holistic view of their finances, including account balances, transaction histories, and spending patterns, facilitating better financial management. 

Quick and efficient payments

Users can initiate transactions directly from the app rather than using third-party payment processors, reducing transaction costs and processing delays. 

Real-time financial data

Users can receive instant updates on account activities, transaction statuses, and balance changes, allowing users to make timely financial decisions. 

Personalized banking experience

Developers can create personalized financial experiences tailored to individual user preferences and needs that cater to specific financial goals.

Regulatory compliance

Open banking frameworks include standardized APIs and protocols that ensure compliance with regulatory requirements, such as PSD2 in Europe. These frameworks promote interoperability between financial institutions and third-party providers. 

How does open banking work? 

Open banking securely exchanges financial information between banks and authorized third-party providers (TPPs) via standardized open banking APIs. These APIs facilitate TPPs' access to customer account information and enable account aggregation, payment initiation, and data sharing.

When a user consents to share their financial information with a TPP, the TPP obtains an access token through OAuth 2.0 authentication. This token grants limited access to the user’s account data for a specified period. The TPP will then make API calls to retrieve the requested information or execute transactions on behalf of the user. 

APIs often employ encryption mechanisms to protect data during transmission. 

A flowchart showing the steps involved in the open banking process

Mobile apps and open banking

Mega-banks are expanding their services or partnering with another player to provide a super app. 

But what is a super app?

Super apps are a new wave of digital disruption in the finance/banking industry. They make open banking easy and accessible for financial institutions and consumers by efficiently facilitating multiple tricky tasks.

Google PayApple Pay, and other services that allow you to perform transactions easily are all examples of super apps in the banking industry employing open banking. 

In China, WeChat and Alipay are super apps. WeChat allows users to connect their bank accounts to their WeChat accounts, enabling them to make transactions within a chat—similar to WhatsApp Pay and Meta Pay. 

Chargebee supports open banking payment methods via GoCardless.

Rappi, another super app originating in China, has more than 30 million users in 350 cities in 9 countries. 

Uber is a super app that has expanded beyond ride-hailing services and food and package delivery into travel bookings. 

How are mobile apps used in open banking?

The various ways in which mobile apps are used in open banking are

Authentication and authorization

Apps use OAuth 2.0 to authenticate users and obtain access tokens, which are used to authorize open banking API requests to users' accounts.

API integration

These APIs allow mobile apps to retrieve account information, initiate payments, and perform other financial activities. 

Consent management

Mobile apps manage user consent for accessing their financial data. Users grant explicit consent within the app specifying which accounts they want to link and what actions the app is authorized to perform. 

Data parsing and presentation

Mobile apps parse the data retrieved from open banking APIs using JSON and XML and present it to users in a straightforward interface.

Push notifications and alerts

Users get notifications triggered based on real-time data obtained from open banking APIs. 

Error Handling

Mobile apps implement robust error-handling mechanisms to gracefully handle API errors, network failures, and other issues that may arise during interactions with open banking APIs. 

What changes when you move from traditional architecture to open banking?

Switching from a conventional banking paradigm to open banking involves adopting novel technologies, re-modeling their businesses, and enhancing customer engagement. 

Here are some fundamental changes:

API-driven infrastructure 

As a technological trend, open banking uses API to share and integrate customer data and financial institutions with third-party service providers. This allows for seamless communication and interoperability between various systems and services.

Data sharing

Business owners will access the clients' financial data through open banking, which is consent-based and allows only authorized third-party providers to access it. For instance, it results in implementing technologies that enhance their personalized services, are more financially responsible, and promote innovative products.

Innovation and competition

With open APIs, third-party developers can create new financial products, services, and applications that can be integrated with traditional banking platforms. This encourages innovation and helps the financial service industry achieve more efficiency. 

Customer-centric approach

The main supportive argument for open banking is a more beneficial model for customers. It provides them with personalized services, real-time financial information, and enhanced user experiences. Customers have greater control over their financial data and can easily switch providers to get the best services. 

Regulatory changes

Regulatory frameworks in open banking systems usually differ by region, but typically, they aim to protect data, privacy, and personal data. The financial players must follow these guidelines while aligning with the changed open banking framework. 

Collaboration with fintech

Traditional banks are increasingly collaborating with fintech companies to leverage their expertise in technology and innovation. Such collaborative processes can imply the emergence of new product offerings, services, and business models, providing better customer satisfaction. 

Risk management

The opening of banking leads to, among other things, an increase in the risks associated with data security, privacy breaches, and fraud. Financial institutions must implement robust cybersecurity measures, fraud detection systems, and data protection protocols to mitigate these risks. 

Revenue streams

Open banking can create new revenue streams through partnerships, cross-selling opportunities, and value-added services. However, it also challenges traditional revenue models, requiring banks to adapt and diversify their income sources.

Cultural change

Adopting open banking requires a cultural shift within organizations. It involves embracing agility, collaboration, and continuous innovation. Employees must be trained and empowered to adapt to new technologies and working methods.

What are the risks of open banking?

While open banking has multiple undeniable benefits, it also introduces several risks that must be carefully managed. 

API misconfiguration 

Improperly configured APIs can lead to unintended access to sensitive financial data. This can occur due to improper authentication mechanisms, inadequate encryption, or insufficient controls. 

Data breaches

Hackers may exploit device vulnerabilities to gain unauthorized access to sensitive data. These can occur through various attack vectors, such as 

  • Phishing attacks, 
  • Malware infiltration, or 
  • Exploitation of weak security protocols. 
Supply chain attacks

Open banking ecosystems involve multiple third-party service providers. A compromise on any of these might have cascading effects on the entire ecosystem. 

Advanced persistent threats (APTs)

These can persistently exploit vulnerabilities in open banking systems over an extended period, remaining undetected while extracting valuable data or disrupting services. This can occur due to social engineering attacks, zero-day exploits, and stealthy infiltration techniques to bypass security defenses. 

Increased attack surface

Open banking widens the attack surface, exposing more entry points for potential cyber threats. The integration of multiple systems and services increases the complexity of security management. 

When adding a new connection or API integration to the already crowded ecosystem, it’ll become increasingly difficult to monitor and protect against all possible vulnerabilities effectively. 

Increased consumer cost due to consolidation of financial services

Open banking can lead to market consolidation. 

Larger financial institutions may acquire smaller ones, leading to a monopoly and increased fees, reduced incentives, and/or diminished quality of service as competition either decreases or vanishes. 

Risks of open banking while using mobile apps

Mobile banking is when you use the bank’s app to access your account. This differs from online banking, where you log in to your account on the bank's website. 

Banks generally have more control over their apps than their websites, and it is essential to have a deep understanding of apps to understand the risks associated with mobile banking apps. 

When it comes to enterprise systems, most pieces of software used are legacy systems. This means that the system is outdated and not up to the standards of the current engineering environment. Modernizing or replacing these legacy systems with more agile and flexible solutions can be costly and time-consuming. This has to be done in multiple stages for enterprise systems: 

Phase 1: Educate the team about the benefits and challenges of open banking. 

Phase 2: Deploy open banking while integrating CI/CD pipeline security. 

Lost phone

You have all your details logged in and saved on your phone. When you lose access to that device, you lose access to your entire account. The scammer can bypass your bank’s security features and gain unauthorized access to your account. 

For added security, you should set up automatic remote erase so that even if your device is stolen, you can erase all critical information.  

Malware or Trojan attacks

Trojan malware mimics the original software but includes malicious code. A recently discovered Trojan, Sharkbot, can intercept legitimate communication from your bank to bypass two-factor authentication (2FA). 

Man-in-the-middle (MITM) attacks

Also known as wi-fi hacking, MITM attacks happen when a scammer hacks into your network and intercepts your data while in transit. A malicious actor can intercept communications between the user’s device and the banking server. 

Phishing attacks

Phishing, smishing, vishing, and other types of social engineering attacks depend on being able to trick the end user. This involves tricking users into providing sensitive information by masquerading as a legitimate entity such as a bank. 

Device vulnerabilities

If a user’s device has security vulnerabilities due to outdated software or unpatched flaws, attackers can exploit these to gain unauthorized access. 

Keyboard logs

Some apps or malware may be programmed to record keystrokes made by the user. This can capture sensitive information such as usernames, passwords, OTPs, and other information required to bypass security features.

How does Appknox support banks that are adopting open banking?

Appknox is the world’s leading enterprise-grade mobile application security platform, helping developers and security researchers build safe and secure ecosystems. We use a system + human approach, combining the ease of automation with the intelligence of human experience to secure mission-critical systems. 

We worked with the largest governing body of the most successful open banking experiment. They faced challenges such as possible Man-in-the-Middle attacks, reverse engineering and code tampering, and social engineering and phishing attacks. 

With Appknox’s help, they incorporated runtime application protection, app shielding and integrity protection, and runtime protection. 

Dive deeper into Appknox and FinTech apps with this webinar - “Panel Discussion: In Fintech We Build Trust-Our Banking Apps At Risk,” moderated by our Co-Founder, Subho Halder, along with industry leaders as panelists.

Appknox relies on top-notch security to deliver sustainable, high-value products. We help our BFSI clients to bolster their mobile application security in the following ways:

Automated testing with Appknox’s Vulnerability Assessment (VA) tool

Appknox helps you achieve a faster time to market with complete vulnerability assessment reports in less than 60 minutes. We also guarantee <1% false positives and false negatives

Get a complete understanding of the vulnerabilities and their impact on your business with our detailed reports.

Our vulnerability assessment tools include:

Fully automated Static Application Security Testing (SAST)

This method analyzes your application during its non-running state. Appknox auto-triggers SAST for all the applications you upload to our system.

Dynamic Application Security Testing (DAST)

Appknox’s DAST helps you scan for vulnerabilities on real devices in your app’s operational environment. This method tests the application on real devices and detects loopholes in the data flow. 

API Testing

Discover the APIs used in your mobile app and initiate comprehensive testing with Appknox’s real-time threat intelligence. Appknox’s API helps you elevate security workflows with API test automation.

Scan third-party libraries using Appknox’s binary-based SBOM

Security analysis of SBOM is essential as it helps protect mobile apps against attacks such as hacking attempts or any other form of unauthorized access by malicious actors, thus ensuring stability and compliance with standards to gain customer trust. 

It offers:

Faster Issue Resolution

Easily discover vulnerabilities that can be addressed quickly.

Improved Security

Maintain a high-security level for your app.

Reduced Business Risks

Minimize possible threats that may arise due to information breaches

Compliance with Standards

Comply with regulations such as OWASP Cyclone DX.

One of the critical reports we generate is the binary SBOM report. Appknox’s binary-based SBOM report is a vital tool for scanning every file and library in your app, giving your development, DevOps, and security teams insights tailored to building secure applications. 

The all-in-one toolkit helps address unique challenges like:

Reducing third-party security risks

Thoroughly assess vendors' risks, build trust in partner choices, and reduce third-party threats within one system.

Providing Comprehensive Reports

Data-driven decisions with actionable insights, including clear component visibility, vulnerability status, risk scores, and new version availability.

Comprehensive manual assessment by the security team at Appknox for in-depth testing

When carried out by a penetration tester or a red team, it highlights the most challenging vulnerabilities that an automated software will fail to identify. 

So, what do we do in a manual test? 

  1. Identify your tech stack
  2. Analyze threat landscape
  3. Set up breakpoints on critical functionalities
  4. Test responses and detect bugs and
  5. Perform exploits for advanced threat detection.

Follow compliances to ensure mobile and API security

Manually identifying security gaps based on the OWASP list is challenging and time-consuming. Appknox, an automated vulnerability assessment tool, swiftly detects and tracks potential vulnerabilities, generating detailed CVSS reports. These reports provide actionable remediation notes to ensure speedy remediation of vulnerabilities.

Assessing OWASP compliance requires thorough scrutiny, which manual assessments often overlook. Various compliances are applicable globally, while a couple are location-specific. Penetration testing and vulnerability assessment tools offer a comprehensive view of risks, providing scores after detailed evaluations. 

To know more about how Appknox can support your bank with open banking, get in touch with us

Frequently Asked Questions

1. Do banks have APIs?

Yes, many banks offer APIs. Banks must make their data available securely for open banking to be usable. Banks employ APIs for analytics, account authentication, account information, payment processing, and loyalty programs. 

2. What are the examples of API in banking?

Google Pay API powered by UPI is a successful example of API in the Indian banking sector. Other examples include Yahoo Finance API, the Bloomberg API, and the Stripe API.

3. What are open banking standards

Open banking standards are guidelines and regulations that govern how data sharing is implemented between financial institutions and third-party service providers. These standards promote competition and innovation and protect consumer data and privacy. 

4. What is a Bank SDK?

A Bank Software Development Kit (SDK) is a set of software tools, libraries, and documentation provided by a bank or a third-party provider to facilitate integration with the bank’s infrastructure. Some critical components of a Bank SDK are API wrappers, documentation, sample code, testing tools and directives, and support and community. 

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