The recent wave of digitization in the banking and payments industry, marked by an increased use of access and network technologies, has created countless opportunities for new players such as fintechs and challenger banks to claim some market share. It has also led to traditional banks considering their market position and rethinking their proposition to their customers. One of the key developments in the last few of years is the emergence of Open Banking, a model that promises to bring more transparency and flexibility in financial services.
What is open banking?
Open banking is a model that relies on open Application Programming Interfaces (APIs) that enable developers to build applications around financial services. Simply put, an API is a way for two computers to communicate with each other over a network using a language that they both understand. It enables banks’ customers to share their financial information with third parties for the development of new services and products. Open APIs allow this information to be securely shared between the banks and the third parties. Needless to say, the future of open banking depends on the development of a robust regulatory framework and guidelines that set standards for all parties involved.
Various countries and their regulatory bodies understand the potential of Open Banking and are working towards developing regulatory infrastructures and guidelines to usher in a new era of financial services for the people. Some Asian countries have accelerated their efforts towards adopting this model. Let’s take a look at initiatives from three Asian countries that are leading the way.
Singapore is leading the Open Banking revolution in Asia. In line with their ambition to position the country as a ‘Smart Nation’, the Monetary Authority of Singapore (MAS) has been encouraging banks and other financial institutions to develop and share their APIs with technology and fintech firms. In 2016, the Association of Banks in Singapore and MAS issued the ‘Finance-as-a-Service: API Playbook’, which acts as a comprehensive guide for banks, FinTech players, and other stakeholders interested in adopting Open API-based architecture. The playbook specifies a more organic approach and adoption of open API is voluntary.
An open banking community has also surfaced in Hong Kong, following efforts by the Hong Kong Monetary Authority (HKMA) to develop a policy framework to facilitate wider adoption of APIs by the financial services sector. In 2017, the HKMA launched the ‘New Era of Smart Banking’, a set of seven initiatives to promote virtual banking, the fintech supervisory sandbox and open APIs for the banking. In 2018, the regulator also released a consultation paper. which details its intended approach to Open APIs. Like Singapore, Hong Kong is also in favour of an organic approach to API adoption.
Malaysia is a recent entry to the list of countries looking to adopt Open Banking in Asia. The country’s central bank, Negara Malaysia, has published its own version of Open Banking Guidelines, which focuses on implementing Open APIs in three areas – Auto Insurance, Credit Card and SME Financing.
The Open Banking revolution is at its nascent stage in Asia and challenges and opportunities will emerge as the community continues to grow. As nations race towards implementation, data privacy and cybersecurity will remain key focus areas for regulators. While many countries in Asia are lagging behind in terms of working out a regulatory framework for Open Banking, the progress made by Singapore, Hong Kong and Malaysia could inspire neighbouring countries to start moving in the same direction.