Open Banking presents considerable opportunities in the Asia Pacific, particularly in relation to increasing financial inclusion and awareness. It has the potential to enable under-banked individuals in developing countries to build financial history and benefit from greater access to the financial system. Access to, and usage of, the financial system is a major priority in many developing economies in Asia, both as a means to stimulate economic growth and more broadly for social inclusion. Including individuals and companies within the financial system also has the potential to improve outcomes in terms of pricing and reducing the threats of financial crimes.
There continues to be progress in Open Banking regimes in the Asia Pacific, with the evolution of regulatory frameworks and use cases, particularly focused on financial inclusion. This has inevitably been disrupted by COVID-19 and some slowdowns in underlying economic activity, as well as increased concerns around data and information security. The recent past has created some barriers to financial services innovation, although the direction of movement continues to be positive. However, Open Banking remains important to the development of transparency and extending financial and economic inclusion across many Asian economies.
Public policy approaches have varied across the region. India, for example, has invested heavily in infrastructure, including the United Payments Interface, aimed at creating public utilities to support its citizens in accessing the financial system. Australia has been more regulatory-led, with its Customer Data Right making it mandatory for financial institutions to adopt ‘Open Banking’. Hong Kong has opted for an approach based on opt-in, while Singapore has adopted a more market-led approach. There is no ‘one size fits all’ approach across the region, however, there is a clear trend towards greater ownership of data by bank customers.
Various constraints on data sharing between countries continue to mean that many use cases are domestically focused. However, the continued development of distributed ledger technologies and the ongoing application of machine learning tools, combined with the growth in regulatory frameworks, particularly around cross-border payments, augurs well for the future in this space. Many use cases are being developed across the Asia Pacific looking at cross-border payments.
India’s technology-led approach is being transformational to its banking system. This includes the development of its interoperable payments system, underpinned by its national identity database, Aadhaar. In addition, Singapore launched SGFinDex in late 2020 leveraging the national identity system Singpass, to allow financial data aggregation.
There is also considerable innovation looking at the broad topic of cross-border payments. Much of this is happening in private enterprises, but ultimately transformation will happen alongside the development of legal and regulatory frameworks, data and information security frameworks, and the willingness and capacity of countries to collaborate on solving specific use cases. One example of this would include the broad topic of migrant worker remittance, which is both an economic and social issue between many countries in the Region.
Data and information security are key considerations due to both improved regulatory scrutiny on data security and cross-border information sharing; and, through the increased prevalence of frauds and internet-based scams, especially during the COVID-19 period. Data security concerns are a barrier to innovation and new market entrants and there is increasing emphasis on personal ownership of data and information security. System confidence will be essential to further financial services innovation.
Vibrant fintech sectors and regulatory regimes that allow safe environments to ‘test and learn’ are essential to innovation in the financial services industry. This is both in terms of allowing new ideas to grow and through creating the ‘fear of disruption’. The combination of vibrant technology sectors and supportive regulatory regimes is seeing considerable progress in Open Banking in Mainland China, as well as Hong Kong SAR, Singapore, and India. This progress is often being led by the traditional players in banking on an ecosystem basis, rather than through competition.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Tony Wood is the Banking and Capital Markets Leader of Deloitte Asia Pacific, with over 30 years’ experience in strategy, risk, corporate finance, and transformation across Europe and Asia Pacific. He is also the lead service partner for one of the region’s major banks.
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