BI pushes for Open Banking development amid data security concerns

According to the bank, data-sharing system would be able to accelerate banks’ digital transformation efforts, adding that the open banking framework would be used to create a unified national payment system by 2025.

An open banking framework mandates banks to share customer data with approved third parties, such as financial technology (fintech) companies, thereby allowing both parties to access data that offer insights into consumer patterns and needs, as well as credit score, among other things.

The 2018 Financial Inclusion Insights survey, published by the National Committee for Financial Inclusion in November last year, reveals that 55.7% of the 6,695 respondents in all provinces of Indonesia already had formal financial accounts with banks, fintech companies or cooperatives in 2018.

That figure is a jump in financial inclusion from 35.1% in 2016 and brings the country closer to President Joko “Jokowi” Widodo’s target of 75%  financial inclusion by the end of 2019. The financial inclusion report for last year has yet to be announced.

The central bank is currently formulating regulations on open banking standards, which will oblige banks to share their data with fintech companies by creating their own application programming interfaces (APIs) from their own systems.

An open banking platform will see traditional banks help digital players reduce technical costs by sharing the know your customer (KYC) metrics or loan affordability metrics in an API.

The initiative may reduce borrowing costs for micro, small and medium enterprises (MSMEs) as banks could access MSMEs data provided by digital companies, among other benefits.

Banks had dominated the retail payment industry back in 2015, but e-payment start-ups such as GoPay and OVO had taken much of the market share four years later, adding that banks should transform their businesses or risk losing the market to non-bank platforms.

According to data provided by the central bank, several banks have transformed their business online, such as private lender DBS with its Digibank platform and state-owned banks (Himbara) with their LinkAja platform, creating an interlink between fintech and banks to contain escalation of shadow banking risk.

The central bank also recorded that electronic transactions increased to Rp 15 trillion (USD 1 billion) in May 2020 compared to Rp 12.8 trillion in the same period last year. Meanwhile, the central bank recorded ecommerce transactions growing 26% during the pandemic.

Several industry players and analysts have raised concerns over a lack of a standardised security system, as well as a lack of data protection regulation, all of which can harm customers.