Open Banking
August 3, 2023
5 min

How Open Banking Simplifies Account Authentication

Timothy Shin

Open Banking Expert

Account authentication, also called account verification, is the process companies use to confirm the validity and verify the ownership of bank accounts. Among several other use cases, account authentication is necessary for opening a new bank account, linking a new payment method, sending or receiving funds, and filling out a loan application. Bank account authentication is important because it helps merchants prevent fraud, maintain compliance, and expedite onboarding processes. 

While necessary, traditional methods of account authentication are often friction-filled processes that can lead to human error or customer drop-off. Open Banking helps mitigate this and improves the user experience by enabling merchants to directly connect to the consumer’s bank account in real-time, checking the consumer’s name to prove ownership and account/routing numbers to prove validity. 

Existing Methods of Account Authentication Are Slow

The standard ways of authenticating account information often consist of one of the following: 

  • Micro-Deposits
  • Bank Statements 
  • Credit Checks 
  • Manually Contacting the Bank 

All of these methods can often take several days or more to complete and come with a host of complications. It can be a hassle to wait and look for a 2-cent deposit in your bank account, send a bank statement, or initiate a credit check. 

The sheer amount of effort required to complete account authentication this way is often seen as a nuisance and can detract from consumer satisfaction. These processes often include a lot of friction that can frustrate consumers and prevent them from finishing onboarding altogether. 

The American Financial Professional Association’s 2023 Payments Fraud and Control Survey showed that in 2022, 65% of organizations were victims of some form of payment fraud. This illustrates that while authentication can be a friction-filled process for consumers, it is still a necessary evil and essential for merchants to take responsibility against. So, how can merchants streamline authentication without compromising security? 

Open Banking APIs Aim to Improve Account Authentication

As a whole, Open Banking is a system that allows banks to share financial data with third-party application programming interfaces (APIs) and is based on the idea that consumers should have authority and control over their financial information and can consent to share it with third parties of their choice. 

Banks have traditionally held control over their consumer’s financial information, historically making innovation challenging, especially in areas such as account authentication. Open Banking seeks to create a landscape that allows third-party APIs to provide streamlined financial services. Essentially disrupting the existing banking format in a positive way to bridge the gap and render services to meet consumer demand in the space. 

Streamlining Authentication with Open Banking

Account authentication is the secure process in which consumer bank account and routing numbers automatically get retrieved. Companies and institutions seeking to onboard new customers can utilize Open Banking to streamline account authentication quickly and easily without risking the security and integrity of their services. Merchants that seek to offer Pay-By-Bank for their e-commerce stores can utilize Open Banking APIs to simplify the account authentication process when a consumer tries to complete a transaction using their bank.

How the Process Works 

Open Banking API technology allows merchants to validate banking account credentials easily. There’s no need for the consumer to enter bank account numbers, routing numbers, or other tedious bits of financial information that are most likely not memorized or easily accessible. Instead, Open Banking solutions can allow the retrieval of bank-grade data for authentication using just banking login credentials that never get stored.

Open Banking APIs allow third-party providers to obtain data directly from the banks, thus allowing financial institutions and merchants to use the retrieved bank-grade data to onboard new users and authenticate accounts. The APIs essentially act as a bridge to request and retrieve consumer bank data with minimal fuss. 

The entire process occurs in real time and requires easy input from the consumer’s end for a more frictionless experience. There’s no longer a need to rely on outdated authentication methods that make the process difficult and slow, causing churn and drop-off. Open Banking provides a superior account authentication process that is secure, simple, and seamless 

Open Banking Account Authentication Solutions with Trustly Connect

With Trustly Connect, users can share their account credentials without leaving your website or app. By integrating Trustly Connect into your flows, consumers are asked to connect their bank account by entering their login credentials and authenticating with their bank. 

The whole process takes less than a minute, and because Trustly Connect fetches bank-grade data, the process results in accurate, fast, and secure account authentication. This direct connectivity eliminates the pain points traditionally associated with account authentication and provides a a seamless experience for the consumer.

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