Open Banking and its Coming of Age in Asia's Markets

Open Banking and its Coming of Age in Asia’s Markets

August 21, 2020

Finastra Senior Vice President and GM MENA/APAC Wissam Khoury says as Asia emerges from the pandemic, open banking could well see further acceleration in Hong Kong, Singapore and other parts of Asia.

By Wissam Khoury

It will not have escaped most people’s attention that digital financial services have seen major advances in recent years. From being able to make e-payments through super apps like Grab to banks increasing the range of services available online and improving the traditionally poor digital user experience, we now expect to be able to manage and move our money with ease.

There are many factors at play here, from high smartphone penetration to changing consumer behaviour, but one thing that has underpinned and enabled much of the innovation we have seen is Open Banking. In fact, a recent survey by Finastra found that nearly all banks in Singapore and all banks in Hong Kong said Open Banking is important to their organisation, whilst well over half in both markets said it’s a must-have. This is strong endorsement, but what exactly is Open Banking and what makes it so important for Asian banks?

At its core, Open Banking is a concept centred around the sharing of bank data with third parties, with the goal of opening up the banking industry and encouraging innovation. Through application programming interfaces (APIs), customer data is shared securely and seamlessly between banks and third parties, such as fintechs, which enables the creation of new apps and services. These might be apps that banks can plug into their own systems in order to offer a new or improved service to their customers, or non-bank services that require customers’ banking data.

For banks, this has a range of benefits. For instance, developing banking software in-house is costly and time-intensive, but Open Banking enables banks to leverage the expertise of fintechs that have already developed the capabilities they are looking for. Through open APIs, banks can easily plug in and customise a fintech’s solution and bring that service to market quickly, knowing it has already been proven. With such clear advantages, it is unsurprising that Finastra’s research found 89% of Hong Kong banks have either adopted, are currently adopting or are looking to adopt open APIs in the next 12 months.

This ease of collaboration, enabled by Open Banking, also enables the creation of relevant and innovative financial services in ways not previously possible, ensuring superior user experiences are delivered to customers faster and more seamlessly. For example, a non-bank provider of finance can now rate a customer’s creditworthiness using open APIs to access their financial information, while platforms for comparing insurance products utilize APIs to enable one-stop service and purchases.

The potential for collaborations is boundless and customer innovations are no longer limited within financial services verticals, allowing banks to partner across industries to bring customers more integrated and targeted offerings. Use cases are being developed to integrate financial services with consumers’ daily activities – for example, customers will be able to compare credit card discounts at the point of making reservations, or pay for online purchases with loyalty points they earned from their banks.

Leveraging Open Banking means collaboration can also take place across different markets, meaning the ability of banks and fintechs to find the right innovation partners is no longer limited by geographies. This has accelerated collaboration between financial institutions and technology companies across markets.

For example, the ASEAN Financial Innovation Network launched the API Exchange in September 2018, with participating countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Within a year of establishment, the exchange had already onboarded over 40 financial institutions, over 100 fintechs across more than 20 countries, and connected fintech innovations across the banking value chain with banks at scale and speed. Successful use cases developed by the exchange span a wide range of applications from customer engagement, compliance and reporting, through to remittances. As Open Banking continues to gain traction, more cross-industry and cross-geography collaborations and exchanges of this kind can be expected.

Collaboration between financial institutions and fintechs will also be accelerated through the platform approach that has already disrupted industries like tourism (i.e. Airbnb) and transport (i.e. Grab and Go-Jek). Finastra is leading the charge with its own platform for innovation, FusionFabric.cloud, which includes a platform for developers to create apps and an online marketplace for financial institutions to find the solutions they need, all in one place. The platform approach will make it easy for banks to easily find solutions, while developers will gain access to a huge market.

It is also worth noting that Asia’s macro environment is conducive to the success of Open Banking. Asia has seen a boom in its population and is creating some of the fastest-growing economies in the world ; the region is also known for its rapid digitalization and the population’s general digital savviness for everyday activities. In addition, the pandemic has accelerated the trend of digitalization as more activities are now being done remotely and will likely remain so even after the pandemic abates.

The region has also seen encouraging moves from regulators. For instance, the Monetary Authority of Singapore (MAS) has published a robust framework and guidelines designed to propel the development of Open Banking, which have been welcomed by the industry.

In Hong Kong, 20 retail banks made more than 500 Open APIs available within seven months of the launch of the Hong Kong Monetary Authority’s (HKMA) Open Banking Framework in early 2019. Later in 2020, the HKMA is set to publish a set of technical standards for Open Banking, following which, an implementation schedule for the last two adoption phases is set to be laid out.

With regulators committing to the continued enhancement of Open Banking regulatory support and framework, combined with the organic demand from the market, the financial ecosystem will more likely be incentivized to collaborate and innovate together.

There are compelling drivers for the continued popularisation and widespread adoption of Open Banking in Asia. As it continues to see increased uptake, the financial services and technology industry is anticipated to converge even more to seize new opportunities and shape the future of finance through innovation and collaboration.

(Ed. Featured image courtesy of Flickr. To access the latest Finastra report ‘Open Banking and collaboration: State of the nation survey 2020’ click here.)

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