Open Banking Can Help Banks Beat Fraudsters, GIACT Says

Caitlin Sinclair, director of proposition development, financial crime at GIACT, an LSEG business, recently told PYMNTS that open banking can — and will — give rise to empowered consumers, and take the tedium out of online commerce.

We’ve gone from an environment where one carried physical documents (passports and driver’s licenses) to digital copies of those documents stored online. Passwords have been a hallmark for decades but are of course vulnerable to hackers.

At the moment, as digital transactions and interactions are conducted through Web2, identities are somewhat centralized, among larger enterprises, the marquee names of Big Tech and a variety of government agencies.

Open banking, Sinclair said, can help decentralize those identities, in effect creating a “data store” that is stocked with information about individuals and businesses, diversifying the range of data points that can leveraged to verify identities when conducting online commerce.

And, as she added, the system relies on what she termed the “robust security” that financial institutions already have in place. That enhanced security comes as individuals can use biometric verification or knowledge verification, along with permissioned data to foster trust among stakeholders. Open banking, she said, can be complemented by database identity verification (through providers including GIACT) that check information across a number of sources.

“For businesses that are integrating open banking,” she said, “there’s reliability in the data that they are receiving — because they know it’s been through all of these checks and balances.” Looking ahead, as open banking gains ground across the world, users will be empowered as they have control over where data goes and how it is used.

The additional reassurance and empowerment are welcome in an age where online fraud is a significant challenge no matter where one looks. When it comes to online transactions, she said, there are multiple points of failure — and any number of moments of vulnerability that are ripe for exploitation as criminals impersonate legitimate individuals and entities. For example, as much as 40% of the emergency loans disbursed by agencies (by some estimates) during the pandemic went to bad actors.

That scale of fraud, said Sinclair, “highlights the need to triangulate identities online so that you are dealing with someone who is who they say they are.”

As we move toward Web3, she said, decentralized identities will take root, replacing the pain points that have been extant even with digital document verification. Scanning one’s passport, for example, requires a number of technologies to run in the background — the goal is security, but the failure rates are high and the user experience is less than ideal.

Appropriate Friction

Digital databases and verification, she said, are more adept at introducing the appropriate level of friction into the mix, depending on the use case. The right information is presented to the right parties at the right time, Sinclair noted. The user who’s taking out a loan or a mortgage may need more friction and stepped-up authentication than might be seen with lower-dollar (and perhaps more frequent) transactions. Emerging technologies such as tokenization, which has encrypted verification built in, can be a strong candidate for digital verification.

No matter the methods, she said, the goal is to abstract away the tedium that’s become so ingrained in online interactions — entering email addresses and other identifiers that take time and effort. Micro-deposits take time to settle and verify account ownership — hindering the speed of a desired transaction.

“I hope that soon those [methods] will be things of the past,” she told PYMNTS. To help hasten that progress, GIACT recently struck a pact with Mastercard to offer customers secure account verification.

The joint efforts use a multi-method approach to verify account information for over 95% of U.S. deposit accounts.

The verification processes, she said, “take away from the dreaded re-keying of information.” And in the years to come, she added, “open banking will be one of the stepping stones to move toward a more decentralized identity.”