Leading a financially innovative Asia through Open Banking

Open Banking is one of the most important innovations occurring in consumer financial services around the world that can strengthen the connection among the banking sector, fintech and other financial segments. This improves industry competition and increases market access to financial products and services.

What is Open Banking?

As mentioned in the previous article, Open Banking is defined as a system that provides companies and customers with a range of products or services based on open data streams. They are permitted by users, usually through application programming interfaces (APIs). This concept goes beyond traditional banking to include a variety of financial segments and provides consumers with the ability to exercise control over and transfer of their financial data.

The European Payment Services Directive 2018 (PSD2) establishes a legal framework for secure data flows and creates an integrated market for digital payments by establishing common standards of authentication, privacy, security and data mobility. PSD2 also forces banks to give third-party suppliers access to customer data. Europe was one of the early adopters of the Open Banking system. In the United Kingdom, for example, when PSD2 was launched, it expanded on a payment-focused directive, forcing all financial data to be open to consumers and also stipulated that financial institutions must provide an API to facilitate transfer of data. This has become the de facto standard for Open Banking.

For Asia, some countries have begun to implement an Open Banking system when they realise the benefits that Open Banking can bring, albeit not necessarily with open access by API.

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The impact of Open Banking on Asian countries

Open Banking has created potential opportunities to serve the unbanked and underbanked in many different ways.

Particularly in Asia, which has more than 4 billion people, there is a vast untapped unbanked and underbanked population that can potentially be served and brought into the financial system, which can benefit consumers, businesses, traditional financial companies and new technology participants.

By facilitating access to banking data, open banking can act as a catalyst for innovative financial products and services, such as access to insurance services and credit line extensions. For example, in Indonesia, Bank Andara and Fundamo have launched a mobile support microfinance service network, built on open APIs, enabling microfinance institutions to access up to 40 million Indonesians who were previously financially excluded. Open banking can help them to access innovative services like microinsurance which they previously could not access.

The open access platform can therefore help consumers to easily access financial services with the most competitive price. As for financial service providers, providing the best service platform and innovative products for customers and at competitive prices can help to increase revenues and market share.

Building an open financial ecosystem in Asia

Creating an open financial ecosystem requires both technological development and strategic change. To meet market demands faster, banks and Financial Services Organizations (FSIs) need to allow access to internal systems through third-party APIs. Doing so will lead to security vulnerabilities and system stability issues, and banks and FSIs can address them by leveraging cloud technology to address these issues while harnessing the benefits of open banking.

Combined with the proliferation of other digital financial platforms (such as Fintech), this has enabled Asia to leap forward to the next generation of digital financial services. As Open Banking becomes accepted and popular around the world, there is no doubt that Asia has a strong potential to maintain an innovative edge and can take the lead globally.

And the question is: "How can Asia countries keep up with the world market and find their own development path?"

According to a recent PwC survey, it is estimated that 8 out of the 10 fastest growing mobile payment markets in the world are in Asia. The top fastest growing market is Vietnam, which has more than 60% of regular users, most of which conduct transactions via smartphone. Google estimates about $1 billion of cashless transactions (mostly based on mobile payments) were made in 2017 on local digital commerce platforms, such as on ride services from Grab or Go-Jek. In China, more than half of point-to-point transactions today are made via electronic wallets such as AliPay or WePay, with an estimated total value of over $122 billion.

Facing fierce competition from innovative banks embracing digitization, traditional banks are speeding up innovation by developing APIs and new services, while taking advantage of opportunities from the new legal framework. In contrast, traditional banks that do not adapt to the open banking systems as an inevitable development will not be able to retain customers and meet the needs of increasingly technology-savvy users.

While not attention grabbing to the public, the European banking law has attracted the attention of many monetary authorities around the world. PSD2 requires banks to create APIs (means of packaging and sharing separate data sets between organizations) for digital banking transactions. Aiming to adapt Europe’s experience to the Asia context, regulatory agencies in Asia are now seeking to create laws that create conditions under which an Open Banking ecosystem can thrive in Asia. For example, Japanese regulators have encouraged banks to release APIs, and a revised banking law is expected to encourage 80 major retail banks to open APIs by 2020.

In some other countries, the cooperation between sandbox style among banks, fintechs and regulators has fueled the debate on the direction that Open Banking activities should take and accelerate the development of Regional API. In July 2018, the Hong Kong Monetary Authority (HKMA) announced the Open Banking API framework developed in collaboration with industry stakeholders, which has gained traction. Since the beginning of 2019, about 20 retail banks in Hong Kong have launched more than 500 APIs open for product information and will participate in the second phase, involving APIs for loans, credit cards and Other new applications in October this year.

Similarly, the Monetary Authority of Singapore (MAS) published a Playbook API in November 2019. Thus far, API Registration Singapore has logged 121 transaction APIs and 192 information APIs. In 2017, DBS, the largest bank in Singapore, launched what it claims is the world's largest API development platform for money transfers and other services of its own digital banking and partners like PropertyGuru, AIG and FoodPanda.

i) Create a solid infrastructure

The incredible growth of digitization in Asia, especially in the financial sector, is largely driven by the development of mobile trading platforms, increasing consumer adoption of digital banking and intensifying efforts by Asian governments to promote cashless society. For this development to continue growing sustainably, banks need to create a solid infrastructure. Both technology systems and the regulatory framework to support the technology needs to be put in place.

Asian countries need to enact a strong legal system to promote Open Banking in data sharing and allow third parties to provide products and services on a centralized platform. This will help to enable digitization of the Asian economy, facilitate the rise of technology platforms to offer unified financial products and services for customers, and increase competition among financial service providers.

As banks enter into partnerships and develop new API platforms, it is necessary to ensure that they remain aware of the resulting cybersecurity risks and potential stability issues, and take steps to mitigate them. This will build user confidence in database security and peace of mind in using the available services that open banking provides them.

ii) Protect customers' data right

Although open banking promises many benefits to consumers, the widespread sharing of customer data requires banks to strengthen the protection of user data. In particular, the focus should be on data-related privacy issues as the increase in the number of connections makes it easier for unauthorized parties to access and steal data from users and businesses. Having a team in place to check and monitor unauthorized access is necessary. Privacy is emerging as a top concern in the digital economy, not only in Asian countries but also globally.

Open banking also raises questions about the transparency, comprehensiveness, and portability of user data. Users of open financial services have a right to transparency in what data is collected, how to use them, and how the data is used by the service providers.

For that, Asian countries can refer to the General Data Protection Regulation (GDPR) of Europe for examples of new laws and regulations promoting data protection in an open digital economy. GDPR contains a range of data protection standards including standards related to privacy, transparency and portability. Since Asian companies doing business in Europe have to meet strict GDPR standards, their experience in complying with data protection regulations could inform the protection of user data and privacy in an Open Banking system in Asia.

iii) Develop standards for Open API in Asian

As Asian countries began to promote the construction and completion of the Open Banking system, common standards specific to Asia, or even, global standards have not been defined clearly yet. However, if countries in the region work towards agreeing a set of standards to promote the Open APIs system, this will accelerate the development of Opening Banking in the near future. For example, countries like India are issuing strict data localization requirements for local financial operations, forcing multinational enterprises operating in the country to reconsider data governance. The right to request localization of data is justified by such countries on the basis of data protection and privacy. Such requirements will greatly limit the portability and interoperability of data across borders.

Currently, countries in Asia will have to deal with a number of problems when contemplating building an Open Banking framework. Should countries adopt a technology neutral approach or require specific technologies like APIs? How will valuable user data be protected while promoting transparency, intelligibility and portability of the data? How can Asian countries develop their own regional standards while ensuring interoperability and portability of data globally?

There is no "one-size-fits-all" solution to implementing Open Banking in Asia and each of these questions posed will need serious thought.


1. Data sharing and Open Banking

2. Financial Industry API Register

3. Mobile payments in Vietnam fastest growing globally, Thailand emerges second in Southeast Asia.