Open Banking Done Right: How Splunk Improves Resilience

Open banking has the potential to disrupt the financial services industry in the same way AirBnb and Uber tore up the old script in hospitality and public transport. We stand on the precipice of a major democratization of access to financial access, which could give consumers access to aggregated data from all their financial accounts through a single app. More importantly, open banking provides the infrastructure for easier movement of money and less friction and cost to switch between institutions.

This integration would offer a raft of opportunities for third party fintech companies to create new revenue streams. I have already seen the extraordinary potential of this model through Open Finance at Nubank , which reached a milestone of 13 million active consents — over 30% of the total market — at the end of 2023. McKinsey & Company projects that by 2026, open banking could enable account-to-account (A2A) payments to manage approximately $200 billion in consumer-to-business transactions in North America alone.

Open banking operates through application programming interfaces (APIs) that allow third-party developers to access data from traditional banking systems. This model not only empowers consumers and small businesses with greater control over their financial information, but also expands options for payments, money management, and credit access. However, developers creating innovative applications on top of existing financial infrastructures face various risks, including security vulnerabilities, performance issues, and system complexity. 

Benefits and Challenges of Open Banking

Banks worldwide are progressively opening up their systems to allow consumers and other financial institutions access to customer data. From the EU’s 2018 Payment Services Directive 2 (PSD2) to Hong Kong’s Open API Framework and Australia’s Consumer Data Right (CDR) framework, various jurisdictions have encouraged or mandated banks to enhance data portability. These initiatives aim to make it easier for customers to switch banks and take their data with them.

Now, the U.S. is preparing for a similar revolution following the Consumer Financial Protection Bureau’s proposed Personal Financial Data Rights rule. According to KPMG, 53% of banks are prioritizing the development of APIs that will allow other financial institutions to access their data.

The key benefits for consumers include:

• More convenient financial management.
• Easier credit access.
• Innovative payment services.
• Consolidated view of multiple financial accounts.

For banks and fintechs, open banking creates opportunities to:

• Develop new, personalized financial services.
• Collaborate on specialized offerings without major investments.
• Generate revenue by distributing niche financial products.

But protecting the bank and maintaining the integrity of its systems is crucial. Full-spectrum visibility is essential to managing risks and ensuring the successful delivery of the innovations that open banking promises. This is where security and observability solutions become invaluable.

Open Systems With Tight Controls

Resilience will be a fundamental requirement for banks developing the requisite APIs. Data breaches or operational failures can quickly erode trust, and in the interconnected world of open banking, failures like these can destabilize other parts of the financial landscape. With the involvement of multiple parties, banks must have robust monitoring and rapid response capabilities to effectively manage these risks. 

API monitoring becomes especially crucial in this context, as it allows institutions to keep a close watch on the flow of data between systems. Splunk has a well-established track record of delivering security and observability solutions that empower financial services companies to manage their systems effectively – and enhance their resilience posture. Splunk Infrastructure Monitoring and Splunk Application Performance Monitoring (APM) gives financial institutions visibility into their operations, allowing them to swiftly address issues as they arise.

Whether it’s a sudden spike in transaction failures or the emergence of a security threat, Splunk ensures these challenges are identified and resolved. Solutions like Splunk Synthetic Monitoring are crucial in overseeing APIs and the processes they support, ensuring they meet performance expectations.

Why Use Splunk for Open Banking Resilience?

But Splunk’s capabilities go beyond just reactive problem-solving. Splunk also enables financial services companies to adopt a proactive approach to risk management, especially in the context of open banking. By mining operational data, Splunk can: 

• Detect potential risks, such as unusual patterns in API usage, that might signal operational issues or security threats. 
• Preserve the security and stability of open banking platforms, and help institutions comply with stringent regulatory requirements.

Open banking projects often involve integrating numerous legacy systems, particularly for banks that have spent decades building their infrastructure. Splunk seamlessly integrates with existing financial technologies and APIs, ensuring continuous security and observability across both legacy and new systems.

Given the complexity of open banking, with its many interconnected components, Splunk provides a comprehensive visibility solution for both performance and security. This holistic view enables banks and fintechs to manage risks more effectively, and identify vulnerabilities before they can cause harm.

The success of open banking will depend on the need to balance commercial opportunities with the costs of implementation and the need for robust security measures. We can expect to see continued collaboration between traditional banks, fintechs, and regulators as they work to shape the future of open banking. If interested, learn more here about how Splunk can enhance the resilience of your open banking platform as this ecosystem matures, ensuring long-term success and stability.