“The Heart of Revolution”: “Open Banking” Brings Financial Empowerment to Society
Lead: The concept of “Open Banking” originates in the U.K., along with similar concepts such as borderless banking and Open Platform Banking. Open Banking, through the merging of third-party data, algorithms, businesses and work-flow processes, succeeds in transforming into a business-driven application structure, and upgrading the entire system from front- to- back- office to be resigned to banking platform with that of third-party vendors. It is driven by customers’ needs, making use of technologies like API/SDK as the means, and eco-system scenarios as the basis of application to provide customised services and achieve data commercialisation.
As innovation of financial technologies and transformation of banking operations continue to gather pace since 2018, the time is ripe for “Bank 3.0”, meaning digitised, smart and open. Some article claimed that 2018 was the first year of Open Banking era, and assumed that Open Banking would fundamentally alter the business, marketing, risk control and operation models of commercial banks, to extend their service boundaries, and ultimately change their growing curves. The banking industry would take this opportunity to undergo a revolution.
In July 2018, a IDC survey of 146 Asia-Pacific banks showed that 7/10 banks see Open Banking increasing their customer reach, and 4/10 of these see alternate direct/ indirect revenue streams in Open Banking. In view of less than 10% of banks today can claim to be “innovators”, it has the potential to level the playing field among banks. The survey estimated that majority of banks are expected to ramp up their capabilities in terms of Open Banking between 2018 and 2020.
As Open Banking is gradually becoming a norm globally, majority of retail banks express the willingness to ‘embrace’ it. More and more positive attitude is attributed to the situations of different markets throughout the world, in which represented by the UK and the EU that the banks are more specifically to satisfy regulatory requirements, whereas in which represented by South East Asia and China, most of those are initiated by financial-technology innovation and driven by the market itself.
So, what exactly is “Open Banking”?
The concept of “Open Banking” originates in the U.K., along with similar concepts such as borderless banking and Open Platform Banking. Open Banking, through the merging of third-party data, algorithms, businesses and work-flow processes, succeeds in transforming into a business-driven application structure, and upgrading the entire system from front- to- back- office to be resigned to banking platform with that of third-party vendors. It is driven by customers’ needs, making use of technologies like API/SDK as the means, and eco-system scenarios as the basis of application to provide customised services and achieve data commercialisation.
Opportunities for accelerating Open Banking in Hong Kong and Taiwan
There is a mode for the Open Banking development. In the U.K., Open Banking is a trend or concept that arises from regulatory needs. To put it another way, the regulators proactively issue guidelines or decrees to oblige traditional banks and financial institutions to share customer information for free or for a fee. In Hong Kong and Taiwan, Open Banking is also driven by laws or regulations.
In Hong Kong, “Open Banking” is raging. At this moment, Hong Kong’s regulators are employing a wait-and-see approach with the hope that it will allow both players in private and public sector to form a rhythm and work out any potential hurdles before the Open Banking wave crests.
In July 2018, Hong Kong Monetary Authority issued a revised API framework for Open Banking. The framework would be implemented in four phases and was aimed at encouraging provision of innovative, general services to enhance customer experience using technology. As at the end of January 2019, the first phase involving publication of banking retail product information including that on credit loans, credit cards and wealth management, was completed. Phase Two involving account-opening using third-party service providers’ apps would be implemented by the end of October this year. The third phase involves accessing customer account information and the fourth phase involves making payment and transfers transactions. The time frame for the last two phases would depend on the progress of the previous two phases.
Financial Supervisory Commission (FSC) in Taiwan has adopted Hong Kong’s mode, which is promoted by banks and third-party service providers(TSP). Open Banking is to be achieved through three stages. The first stage of openness aims at the banks’ commodity information, such as credit card, fund, mortgage interest rate and other public information. The second one is to open customers’ information by obtaining their authorisation. Meanwhile, TSP can provide account integration services. And the last but not the least one is to open information for trade.
The FSC instructs local Bank Association to study the scope and self-regulation of cooperation with TSP and the financial institutions are responsible for formulating common API standards, including technology and information security standards. The Global Research & Industry Alliance under National Chengchi University is responsible for reviewing financial institutions’ files in the aspects of technology and information security. It also acts as a platform for Open API verification and testing, and consolidates the views of TSPs for reference.
Open Banking: The flip side of the coin is risk released
In China, the term “Open Banking” is relatively a new concept, but that is not to say there is no practice or case study of rendering services and businesses in an open way. As early as 2012, Bank of China had proposed a concept of establishing open platform. In 2013, it announced its open platform, making a host of applications available, such as mobile payment, investment and wealth management, credit card management, account management and cross-border financial services as well as more than 1,600 interfaces. Subsequently, the major banks began to explore the ways, through opening up API, to achieve connections between financial services and user scenarios. By continuous effort, the banks attempted to offer better customer experience in the context of weakening collaborations between banks and current financial technologies.
The financial innovation of Open Banking in China is remarkable and successful even when viewed globally. But the flip side of the coin is, the greater the opportunity, the higher the risk.
In other words, the risk mainly focuses on its openness. Partners provide scenarios for collaboration, but there is little output about the core capability for risk control. Banks should consider and be well-prepared of whether they could response to the risks about input, resonance effect, and unpredictable matters, and build sustained-releases and isolating mechanisms.
In addition, as Open Banking in China is still in its infancy, there are many risks and hazards, such as different standards and norms, lack of mechanism for access, weak data security protection, and malicious calls in the interface. In the future, in order to solve the problems above, calls for international collaborations in terms of regulatory supervision for establishing unified technologies, data standards and norms, as well as the data-security protection and internal control mechanism are essential and critical.
Experian secures the implementation of Open Banking during the critical juncture of banking Innovation
China’s Open Banking process is experiencing a critical transition. Professional partners as well as advanced and mature mechanism may help to form a stable transition. Thus, Experian – with long term commitment to providing sophisticated decision-making systems and analytical services for financial institutions – has a sound and fruitful experience.
Experian Greater China has become a strategic partner for providing Business Credit Services, Decisioning & Analytics, Identity & anti-Fraud Solutions, Data Quality and Audience Targeting services. The company has established strategic partnerships with many well-known financial institutions in China, including China UnionPay as well as top ten banks in China, Shenzhourong, JD Finance and Sunshine Insurance. Provision of services to banks are our core business in China.
As the concept of Open Banking began to draw attention last year, competitions among major traditional banks in China get into a white-hot stage. Experian’s explorations in the reform of Open Banking initiatives in Europe and the United States have enabled it to form effective solutions, and hence to provide foreseeable insights and professional services to Open Banking endeavors from four dimensions, namely, strategy, data, insights and implementation. Through those exercises, Experian enabled traditional banks to aid the Open Banking in a safe and timely way.
Take the affordability test operations in the U.K. for example. A customer allows Experian to access his/her account information which can then be verified using existing information in the possession of Experian and statements provided by PSD2. All relevant information is then combined on Verdus platform, which is actively accumulating and managing the data exchanged between the creditor and banks, constantly monitoring the income and outstanding debts, in order to estimate the customer’s monthly disposable income and his/her affordability. Proper recommendation of credit loan product is recommended and the needs of an enhanced loan application and user experience can be met upon customer’s request.
Strategy consulting: during the transition period from traditional ways to Open Banking operations, banks have to make strategic choice in the face of market competition or regulatory demands, based on their own market positioning and risk aversion. They are forced to consider whether to actively build personalised services in order to acquire customers or capture market share or adopt a wait-and-see attitude. In this regard, Experian’s extensive experience in strategy management for retail banking as well as its deep understanding of the Chinese market garnered over decades of operations, as well as an experienced and professional team in the banking industry and Open Banking, will enable it to help banks analyse their existing situation and formulate appropriate Open Banking strategy along with specific implementation methods.
At the core of Open Banking is its data. To be truly ‘open’, data must be freely accessible, and financial institutions have to consolidate internal data and output them for application in conjunction with external data. Experian possesses unparalleled advantage in the area of data analysis. It is not only offering data integration services by its experienced team but providing sophisticated data integration products to carry out automatic integration and construction of wide range of data. An example is Experian’s CrossCore in anti-fraud field, which can actively incorporate diversified data in a precise and effective way.
Insights: Voluminous data are analysed using new technology in order to obtain unprecedented insights. To achieve real-time effect data analysis and reaction, institutions would need to rely on Experian’s breakthrough in technological application and real-time connection technology. Indeed, the process of translating information into insights has always been Experian Consulting’s strength. Experian has assiduously made long-term investments in new technologies and applications, one of which is its innovative laboratory X-Lab, which constantly develops products, technologies and applications that meet customers’ needs. In addition, Experian strengthens and upgrades traditional risk assessment models using new information from Open Banking, to build a more powerful risk assessment model platform. The platform enables Experian to help formulate innovative strategies for Open Banking, as well as forecast better services or products – such as a credit card or credit loan products – for customers befitting their current status.
Implementation: Implementation calls for combining strategies, information and insights, connecting all the dots in the customer’s system environment. For this, Experian’s product portfolio covers basically all aspects of risk management, including information integration platform, fraud detection and through credit risk management. As far as the customer is concerned, basically Experian is capable of meeting all needs throughout the whole life cycle.
Experian builds new service eco-system for Open Banking through Fintech
Fundamentally what drive the changes in Open Banking are new, evolving banking technologies and customers’ consumption preferences.
Open Banking is truly focused on customers’ core concerns. For the customer, there is greater freedom to compare and seamlessly switch financial service providers. The customer’s financial status is considered as a whole. As there is no need to deal with multiple accounts, his needs for financial services such as account processing can also be met in a highly-efficient manner, thereby allowing him to switch accounts as will.
At present there are numerous platforms with advanced financial technologies including Internet-based fraud detection, Internet-based payment integration, Internet-based wealth management, artificial intelligence and blockchain SaaS platform. However, since the financial technologies only handle general applications, to apply them to specific scenarios would require considerable configuration, which may be too much effort for small and medium banks.
Through assiduous development of innovative products and services in keeping with the pace of technological advancement, Experian has been able to participate in and even take leadership in linking traditional closed system of banks with the Internet eco-system, thereby creating a new frontier for banks. Banks and customers are connected in a new manner such that in the Internet eco-system, banks will have the opportunity to come into direct contact with customers, helping them to deeply understand relevant customer data with the ultimate goals of having precise understanding and insight into customers’ true and even potential needs.
With this the service nature of Open Banking can truly be showcased, not least because of Experian’s support for such technology. Banking is the product of socio-economic eco-system and the growth of banking and finance industry will prove essential for the eco-system’s prosperity and growth.
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