Services like MX®, YNAB™, Yodlee™ and Plaid™ make it easy to manage your money by showing all your accounts in one place. These tools use open banking systems powered by data aggregators that connect to your financial institution to collect and share your financial data.
While these tools offer convenience, it’s important to understand the potential risks and take steps to protect your personal information.
What is open banking?
Open banking allows you to grant permission for third-party apps to access your financial data through secure APIs (Application Programming Interfaces) or by entering your login credentials. Data aggregators act as the middlemen, pulling in your account details and delivering them to apps you use.
Why it’s useful
- Simplifies budgeting: Track spending and manage savings.
- Centralized view: See all your accounts in one place.
- Faster financial decisions: Help lenders or advisors get a clearer picture of your finances.
What to watch out for
- Security risks: Sharing login credentials can expose your data to breaches.
- Lack of control: You may not know how much data is being shared or who can access it.
- Unclear liability: If something goes wrong, it may be unclear who’s responsible.
Many consumers aren’t aware of how long apps keep their data or what they do with it, according to the Consumer Financial Protection Bureau.
Tips to stay safe
- Choose apps that use APIs: Avoid apps that ask for your username and password directly.
- Limit permissions: Only share information necessary for the app to function.
- Review access often: Remove access for unused apps.
- Read privacy policies: Understand how your data is stored and shared.
- Monitor your accounts: Watch for unusual activity.
- Ask your financial institution: Many partner with secure aggregators—check what’s available to you.
Open banking offers great tools to manage your money—but only if used wisely and with the understanding that you might be responsible for any data compromise resulting from the use of data aggregators. These best practices may help you stay safe and in control.
Disclosure:
The information provided is general in nature and may not apply to your specific situation or be exhaustive of all risks and corresponding risk mitigation options. Members Cooperative Credit Union does not provide legal, tax, or other advice.
