“The Heart of Revolution”: “Open Banking” Brings Financial Empowerment to Society
Introduction: The concept of “Open Banking” originated in the U.K., along with similar concepts such as borderless banking and open platform banking. Open Banking involves integration of banking platform with that of third-party vendors. It is driven by customer’s needs, using technologies like API/SDK as the means and eco-system scenarios as the basis of application to provide customised services and achieve commercialisation of data. Through integration with third-party data, algorithms, businesses and work-flow processes, the banking operation is transformed into a business-driven application structure, upgrading the entire system from front- to back-office.
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.
According to an IDC survey of 146 Asia-Pacific banks in July 2018, 7/10 banks see Open Banking increasing their customer reach; 4/10 banks see alternate direct/ indirect revenue streams in Open Banking. In view of less than 10% of banks today being described as "innovators", Open Banking has the potential to level the innovation and competitive fields among banks. The survey also reveals that the majority of banks hope to ramp up their Open Banking capabilities over the next three years.
As Open Banking is gradually becoming a norm globally, most retail banks express the willingness to ‘embrace’ it. This change in attitude is attributed to the situations of different markets throughout the world. In markets represented by the UK and the EU, banks are more specifically to satisfy regulatory requirements, whereas in markets represented by Southeast Asia and China, it’s initiated by financial-technology innovation and driven by the market itself.
So, what exactly is “Open Banking”?
The concept of “Open Banking” originated in the U.K., along with similar concepts such as borderless banking and open platform banking. Open Banking involves integration of banking platform with that of third-party vendors. It is driven by customer’s needs, using technologies like API/SDK as the means and eco-system scenarios as the basis of application to provide customised services and achieve commercialisation of data. Through integration with third-party data, algorithms, businesses and work-flow processes, the banking operation is transformed into a business-driven application structure, upgrading the entire system from front- to back-office.
The popularity of “Open Banking” has accelerated business transformation in Hong Kong and Taiwan
There exists in Open Banking a development model. In the U.K., Open Banking is a trend or concept that arises from regulatory requirements. Put another way, it came about as a result of directive or order by regulatory bodies that compulsorily required traditional banks and financial institutions to share customer data for value or for free. In Hong Kong and Taiwan, Open Banking is also driven by laws or regulations.
Hong Kong’s Open Banking ecosystem has grown significantly over the past year. Being the regulator, the Hong Kong Monetary Authority expects both players in private and public sectors to form a rhythm and work out any potential hurdles before the Open Banking wave crests.
The Hong Kong Monetary Authority introduced an Open API framework for the banking sector in July 2018. The framework would be implemented in four phases, aiming at encouraging provision of innovative and general services to enhance customer experience using technology. As at the end of January 2019, the first phase involving accessing retail banking product information on 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 and fourth phase involve accessing existing customers’ account and transaction information respectively. The timetable for the last two phases will be determined based on the completion of the first two phases.
The Financial Supervisory Commission (FSC) in Taiwan has adopted Hong Kong’s model, i.e. Open Banking is to be achieved through collaboration between banks and third-party service providers (TSP). It would be implemented in three stages. The first stage aims at accessing banks’ product information on credit cards, funds, mortgage rate, etc. The second stage is to access customers’ authorised account information while TSPs provide account integration services. The final stage is to access customers’ transaction information.
The FSC directs that: (1) the Taiwan Association of Banks be responsible for studying the scope of Open Banking and self-discipline rules with respect to collaboration with TSPs; (2) financial institutions be responsible for formulating the common API standards, including technology and data security standards; (3) the Global Research & Industry Alliance (GLORIA) under the National Chengchi University be responsible for reviewing the results from financial institutions. GLORIA also acts as a platform for Open API verification and testing, and collects opinions from TSPs for financial institutions’ reference.
Open Banking: The other side of embracing opportunities is risk openness
In China, though “Open Banking” is relatively a new concept, practices around the openness of banks’ businesses and services have long existed. Bank of China proposed the concept of establishing an open platform as early as 2012, and finally announced its official launch in 2013, 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. All the other major banks then followed and began to explore “Open Banking”. Through Open API, they attempted to link financial services with consumer’s life scenarios so as to provide better customer experience in the context of weakening collaborations with FinTech companies.
The success in financial innovation of Open Banking in China is remarkable anywhere around the world. However, the flip side of the coin is, the greater the opportunity, the higher the risk.
The other side of Open Banking is risk openness. Banks collaborate with partners on scenarios, but there is low output from these partners about the core capability of risk control. The following questions need to be considered in advance: (1) whether banks have in place countermeasures against imported risks, resonance effects, as well as ad hoc unpredictable risks formed from accumulation of internal and external risks (2) whether sustained release and isolation mechanisms are well established.
In addition, as Open Banking in China is still in its infancy, there are disparate standards and norms in practice. There is also a lack of entry mechanism. These are further compounded by weak data security protection and abuse of interfaces. How such problems relating to Open Banking will be ultimately resolved depends on regulators’ determination to adopt international standards by way of pronouncement of uniform technology, information standards and norms. It is also dependent on banks’ determination to consolidate their resources and establish data security protection and internal control mechanisms.
Experian secures the implementation of Open Banking at the critical juncture of banking Innovation
China’s Open Banking is experiencing a critical transition. Thus, choosing professional partners and leveraging on advance, mature standards would be helpful towards a stable transition. In this respect, Experian – with the long term commitment to providing financial institutions with sophisticated decisioning systems and analytical services – has a wealth of experience.
Experian’s operations in Greater China cover four major areas, namely Commercial Credit Services, Decisioning & Analytics, Identity & Fraud, and Data Quality & Audience Targeting. The company has established strategic partnerships with many well-known financial institutions, including China UnionPay, top ten banks in China, Shenzhourong, JD Finance and Sunshine Insurance, etc. Provision of services to banks has always been a major part of Experian’s businesses.
As the concept of Open Banking began to receive attention last year, competition among major traditional banks in China has intensified. Experian’s involvement in Open Banking initiatives in Europe and America has enabled it to possess a body of effective solutions and hence to provide beneficial insights and professional services to Open Banking endeavors from four perspectives, namely strategy, data, insights and implementation. Experian aims to help traditional banking operations in China as they transition to Open Banking in a safer and more efficient manner.
Take for example affordability check operations in the U.K. A customer allows Experian to access his/her account information that can then be verified using Experian’s existing data and statements provided by PSD2. All relevant information is then combined on Verdus - a platform integrating data and managing data exchange between lenders and banks, continuously monitoring income and outstanding debts, in order for estimation of the customer’s monthly disposable income as well as his/her affordability. Recommendation of loan product which fits the customer’s profile is then provided. It is also possible to enhance efficiency of loan application and user experience.
Strategy Consulting: As traditional banks transition to Open Banking operations, they have to make strategic choice in the face of market competition or regulatory demands, based on their own market positioning and risk propensity. They are forced to consider whether or not to actively build personalised services in order to acquire more customers or just adopt a wait-and-see attitude. In this regard, Experian’s vast experience in strategy management for retail banking as well as its deep understanding of the Chinese market garnered over decades of operations, not to mention the experience of its 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 roadmaps.
At the core of Open Banking is its data. To be truly ‘open’, data have to 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 analytics, offering sophisticated data integration services through its experienced team. An example is CrossCore, Experian’s identity proofing platform, empowering financial institutions to carry out automatic multivariate data integration.
Insights: Voluminous data are analysed using new technology in order to obtain new, previously-unknown insights. To achieve real-time effect data analytics and reaction, institutions would need to rely on Experian’s breakthrough in technological application and real-time connection technology. Indeed, the process of translating data 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 X Labs, which constantly develops products, technologies and applications that meet customers’ needs. In addition, Experian strengthens and upgrades its traditional risk assessment models using new data 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 credit card or credit loan products – for customers befitting their current status.
Implementation: Implementation calls for combining strategies, data and insights, connecting all the dots in the customer’s system environment. For this, Experian’s product portfolio basically covers all aspects of risk management, including data integration platform, anti-fraud and life cycle credit risk. As far as the customer is concerned, Experian is capable of meeting all its needs throughout the consumer 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 consumers’ core concerns. For the consumer, there is greater freedom to compare and seamlessly switch financial service providers. The consumer’s financial status is considered as a whole and 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 SaaS platforms with advance financial technologies including Internet-based anti-fraud, Internet-based integration payment, Internet-based wealth management, artificial intelligence and blockchain. However, as far as small and medium banks are concerned, they prove too advanced, as such financial technologies involve general applications and do not apply to specific scenarios. To apply such technologies to specific scenarios would require considerable configuration.
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 therefore clearly understand relevant customer data with the ultimate aim 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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