The journey so far
Open Banking continues to gain pace in Asia as legislations and government initiatives start to come into force. In Australia, the Consumer Data Right Act became law on the first of July 2020, following the country’s regulatory-driven approach towards Open Banking. As the first Open Banking legislation to address the concept of data ‘reciprocity’ (data recipients in a designated sector should also be obliged to provide equivalent data), Australian regulators are in a position to set the precedent for determining what ‘equivalent data’ consists of for different sectors. Meanwhile, India, which follows a similar prescriptive approach, has rolled out its Account Aggregator (AA) framework to the public in May 2020. Many of India’s largest banks are already in various stages of their Financial Information User (FIU)/Financial Information Provider (FIP) implementation, and fintechs such as Onemoney and FinVu have gone live after receiving their licenses from the RBI.
On the other hand, countries that take a more market-driven approach have relied on policy makers to introduce measures that promote and accelerate the adoption of data sharing frameworks. In Singapore, the Monetary Authority of Singapore (MAS) published an ‘API Playbook’ with the hope of encouraging banks to open their services and systems. The MAS has also been involved with Open Banking at a global level with initiatives such as the API Exchange (APIX), an openarchitecture platform that enables market players to connect with one another to collaboratively design, experiment, and deploy innovative digital solutions.
Promising use cases for individuals
Along with the fanfare and excitement surrounding Open Banking, there are many ways that individual customers can benefit from the increasing interconnection and data exchange between financial institutions and fintechs. Customers stand to gain from improved banking experiences as they can bypass clunky user interfaces of incumbent banks and manage all their personal finances on a consolidated fintech platform with a sleek design and responsive interactions. Australia-based fintech Moneytree is a front-runner in this category with a platform that stores user’s financial data from different providers.
Customers looking to budget and save will also have even more options available. Frollo, the first fintech in Australia to receive Open Banking accreditation, helps customers find new ways to save through features such as a bill comparison tool, which allows users to compare and switch utility providers by simply uploading a bill. Open Banking can also aid financial inclusion in developing countries where large portions of the population live in rural areas and are not yet included in the formal economy. For instance, India’s Account Aggregator system offers the potential for lending that is not based on assets, but on invoices, payments, or receipts. This opens the door for more unbanked and underbanked individuals to get access to credit at an affordable price.
… And not forgetting the SMEs
Furthermore, developments in Open Banking will enhance financial services and provide new product offerings for SMEs. Firstly, Open Banking can improve the credit infrastructure by giving banks and NBFC lenders access to an SME’s aggregated accounts. With a broader view of the SME’s credit history from multiple sources, the lending decision process will be more comprehensive, leading to less risky loans and shorter processing times. New credit comparison tools that allow SMEs to compare available loan options are another feature that will help SMEs make better financial decisions for their business.
For SMEs, having aggregated accounts also enables them to have a more holistic view of their finances and manage cashflow more effectively with the help of real-time forecasting tools. Additionally, SMEs will very likely have access to more personalised financial product offerings, as banks can tailor their product based on data such as the SMEs spending patterns, revenue trends, and inventory cycles.
A glimpse of the future
Across almost all countries in Asia, regulators are receptive to the idea of Open Banking but divided on the best approach to implement Open Banking concepts. While countries like Singapore tout the market-driven approach, and APIs are readily accessible, actual utilisation remains relatively low. It could be that the lack of a clear regulatory direction has weakened potential incentives to be a pioneer in this area, as there is always the possibility that regulators change their stance and decide to put in place strict Open Banking regulations. Should that happen, having to retroactively change a go-to-market strategy or business model is an unenviable position to be in.
Conversely, in countries with a regulatory-driven approach, market participants have largely ditched the ‘wait-and-see’ attitude for a more pro-active and entrepreneurial one. For instance, Australian banks have shown willingness to position themselves as third-party providers and bring their own offerings to market. Perhaps this is not so surprising, since explicit guidelines from regulators have been instrumental in giving market participants more clarity on what the landscape will look like in the near future. For fintech startups, this vision for the marketplace has helped them move in a more strategic and focused way, with the ability to direct their often-limited resources towards the biggest opportunities.
For incumbents, the threat of having their stronghold chipped away is all too real, and they are actively looking to adapt and re-position themselves through M&As, partnerships, and collaborations. Take for example Australia’s NextGen.Net, an incumbent technology service provider to the lending industry, which recently acquired Frollo in a push to become a leader in Open Banking. This might very well be an indication of things to come, as traditional financial institutions start looking for innovative fintechs to be their dancing partner.
The editorial was originally published in Global Open Banking Report 2020, which follows the journey from Open Banking to Open Finance and Open Data Economy and provides key insights about the benefits of Open Finance for different areas of financial service.
About Joshua Chong
Joshua is an analyst at Kapronasia and has experience across banking, payments, and capital markets. Before Kapronasia, Joshua was with Morgan Stanley Equity Research in London and held strategy and business development roles with UK-based fintechs in the payments and asset management industries. Joshua graduated from the London Business School with a Master of Science in Financial Analysis and holds a BBA degree from BI Norwegian Business School.
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