May 11, 2021


Is Open Banking Safe? Data Protection and Regulation for the UK

As a merchant, the primary goal is to make sure the services you offer are secure and your customers feel safe when completing a payment. The good news is that Open Banking technology facilitates one of the safest payment methods for both merchants and consumers.

Is Open banking Safe?

Written by Araminta Robertson.

In 2021, 2.5 million UK businesses and individuals are already using Open Banking enabled products. Even today, merchants and consumers are still wrapping their head around Open Banking, with many consumers concerned about the potential security and privacy issues that are assumed when they see the words “open” and “bank” in the same sentence.

As a merchant, the primary goal is to make sure the services you offer are secure and your customers feel safe when completing a payment. The good news is that Open Banking technology facilitates one of the safest payment methods for both merchants and consumers.

What is Open Banking?

As the name suggests, Open Banking is all about opening up banking data to help consumers take control of their own data and help them to make the right financial choices. It is an initiative that forces financial institutions to offer customers the ability to share their data with other institutions directly. The customer consents to this sharing so is always in control.  

Until Open Banking was introduced in 2018, banks were able to sit on some of the most valuable data in the world: where and how we spend our money. With Open Banking, this data can be shared with regulated third-party providers (TPPs) such as Mode, through a secure software interface known as Application Programming Interfaces (APIs). All UK banks must provide Open Banking access and these API’s can share data but also allow customers to create Open Banking Payments and other transactions via TPP platforms e.g. make a payment from their bank to a friend or merchant.

The aim is to increase financial innovation and give consumers more choice and better services. The driving force behind Open Banking was the second Payment Services Directive (PSD2), a European directive designed to boost competition and the variety of products in the banking, credit cards, and payments space. Since then, 300+ financial services providers have enabled Open Banking products, including payment service providers, budgeting apps and other financial services providers.

With Open Banking, merchants can access customers’ financial data (with their consent), and provide more personalised services.

Is Open Banking secure?

The short answer is: yes.

In order to understand the details, it’s important to first explain how an Open Banking payment works. Essentially, it enables easy and secure direct bank transfers.

You’ve probably made a bank transfer before - and you probably also know how manual and time-consuming they are. Open Banking powered payments flips the manual process on its head. Instead of manually inputting information, your customer’s bank account integrates into a third party app that enables easy bank transfers.

When your customer arrives at your checkout page, they can choose to “pay by bank transfer”, authenticate their personal bank account, and complete the payment. This video explains the purchase process through our Open Banking platform, Mode.

Since Open Banking operates through bank transfers, the system is as safe as the bank account of your customer. Considering the stringent regulations that banks are required to meet to combat fraud (SMS verification, address verification, various PINs and passwords), remote banking payments are a lot less likely to be fraudulent than card payments.

Not only that, but the third party company that receives the financial data must be licensed under the Open Banking Implementation Entity (OBIE), and meet its own stringent regulations. Customers are in control of their data and can choose what is shared, what isn’t and for how long; all Open Banking data is anonymous and stored securely.

And finally, enabling bank transfers means no more chargebacks. Instead of costly and time-consuming chargebacks, merchants can manage refunds themselves without worrying about fraudulent claims.

Who regulates Open Banking?

The Open Banking initiative was set up by the Competition and Markets Authority (CMA) on behalf of the UK Government. In 2016 the CMA set up the OBIE to deliver Open Banking data storing standards. The OBIE's duties  include:

  • Designing the APIs specifications for Open Banking providers
  • Supporting banks, TPPs and building societies to use Open Banking Data Standards
  • Managing the Open Banking Directory of regulated providers
  • Setting the guidelines for participants
  • Implementing the process for the management of disputes and complaints

Every provider that uses Open Banking to offer additional products or services must be approved and regulated by the Financial Conduct Authority (FCA), a UK financial regulatory body that operates independently from the government.

How Open Banking increases customer engagement

Open Banking is safe to use, but one of its main benefits is the fact that it helps merchants increase customer engagement.

53% of Senior Marketing Executives say having a loyalty scheme is important to retain customers, and yet customer loyalty is still an under utilised customer engagement strategy in today’s age.

That’s because the fragmentation of the payment landscape does not allow merchants access to the data necessary to offer personalised and tailored rewards that they know their customers want. When a customer pays for an item, the interaction usually ends there. What if merchants could integrate into customers’ bank accounts, get access to that data and offer automatic cash back, discounts and incentives based on where and how they are spending?

By partnering with a licensed third party powered by Open Banking, merchants can learn about their customers’ spending habits and offer hyper-personalised rewards based on how much customers earn, their overall financial health and previous spending behaviour.

How Mode Implements Open Banking

Mode is a licensed third party that allows merchants to offer Open Banking and secure payments. Not only do we enable simple and straightforward payments through Open Banking, but we also offer insights based on the data accumulated and rewards in both traditional and digital currencies to incentivise spending.

With Mode’s Open Banking platform, businesses get a payment solution that is:

  1. Cheaper: by eliminating costly card processing fees and facilitating payments directly into your business bank account
  2. Safer: all Mode users are fully authenticated, allowing merchants to accept payments directly from trusted consumers
  3. Smarter: merchants can offer tailored and personalised rewards in digital and traditional currencies, based on a full picture of a customer’s spending behaviour
  4. More awesome: users are able to hold cryptocurrencies in the Mode app and unlock them in the real world

Mode's solution enables merchants to leverage the transformative benefits of Open Banking and accept a much cheaper, safer and smarter alternative to card payments. We offer businesses the opportunity to become one of the first brands to incentivise customers with cash back rewards paid in Bitcoin – the most sought-after asset in the world! By combining payments and loyalty into one app, our aim is to facilitate direct connections between merchants and consumers with a relationship that goes beyond the transaction.

Interested in learning more? Speak to one of our expert team to get early access to Mode’s revolutionary payments and loyalty solution.

Download Mode and get ready for the future!


Suggested articles:

Leave us your details and one of our advisors will be in touch:

I’m interested in Mode payments and/or Bitcoin Cashback solution
I’m interested in offering Bitcoin Payroll
I’m interested in WeChat Pay, Alipay and/or Chinese marketing services
Be the first to find out about Mode news & announcements by signing up to our marketing communications