Open Banking has quickly leapfrogged from a mere concept some two years ago, to almost an inevitable reality today. In 2020, we expect a further acceleration of its adoption spurred by aggressive moves and consolidation by the dominant players in the banking industry.
What started with PSD2 regulation in Europe in 2018, Open Banking is now being adopted in various regions around the world such as Australia, several parts of Asia, Latin America and many other regions. PSD2 or the second Payment Services Directive, is designed by the countries of the European Union which aims to revolutionise the payments industry. Its goal is to break down the bank’s monopoly of their user’s data and allow third-party merchants to retrieve your account data – with your permission – for the purposes of providing better and more efficient customer experience.
What started with PSD2 regulation in Europe in 2018, Open Banking is now being adopted in various regions around the world.
As security is a key concern and one of the most important issues to be addressed for open banking to be truly successful, PSD2 requires stronger identity checks when paying online and will likely involve even more checks when high value transactions are involved. At this point, the specifics are still being ironed out and various countries are in various stages of implementation but suffice to say that it has now reached a stage when the early movers will reap the most benefits and the laggards will be left behind by their competition.
Who Owns Your Financial Data?
In the age of digital banking, the open banking movement is raising a very important question, an answer to which spurs far-reaching consequences: Who owns banking data?
For the longest time, traditional banks have maintained custody of their customer’s banking data, putting up infrastructure and investing in resources to safeguard that data. Now that consumers have the ability to quickly move their money through so-called fintech apps, access to that data serves as a key enabler to make it happen. In the US, start-ups like Plaid and Teller are leading the charge.
According to reports, Plaid, a “San Francisco-based start-up, founded by two former Bain consultants, connects bank accounts to thousands of apps and helps consumers develop a complete picture of their financial data. The company, valued at $2.7 billion, has attracted investments from the venture arms of Goldman Sachs, Citi, Google and American Express.” Basically, it develops APIs to make it easy to share banking and other financial information.
Plaid powers the majority of fintech apps in the U.S., including the popular app Venmo, and is rapidly expanding overseas. It is so successful that financial giant Visa, announced “a $5.3 billion acquisition of Plaid,” which was announced at the beginning of 2020.
One of Plaid’s competitors, Teller, has also embarked on the same open banking mission. According to report, the fintech start-up has “quietly raised $4 million in seed capital from a slew of U.S. investors.” It comes to a market with a better proposition saying that, “unlike Plaid, Teller’s technology is not built using screenscraping, and therefore is “more reliable and performant,” said Teller co-founder Stevie Graham in an interview with TechCrunch.
“The open banking movement is raising a very important question: Who owns banking data?”
Open Banking Around the World
The US is far more advanced though compared to other countries when it comes to open banking. While the UK and Europe has been the so-called frontrunners, implementation and compliance with set deadlines still remains a challenge. In other parts of the world, a softer, non-disruptive approach is being taken to ensure everything proceeds smoothly. Here’s a snapshot of what’s happening elsewhere in the world (source: Open Banking Report 2019)
Australia
The Australian Government had decided to phase in Open Banking – consumers can direct the major banks to share credit and debit card, deposit and transaction data from July 2020, and mortgage and personal loan data from November 2020.
Singapore
The Singapore Government is committed to an organic transition towards Open Banking, more than a coercive framework of deadlines. The Monetary Authority of Singapore (MAS) encourages financial institutions to adopt APIs as a key foundation layer for innovation. Along these lines, together with the Association of Banks in Singapore, MAS launched a Finance-as-a-Service API Playbook. With the Finance-as-a-Service API Playbook, banks have a common guide to identify and develop APIs.
Hong Kong
The monetary authority released a report on open APIs, a first step for the development of the ecosystem, with recommendations on standards and protocols, as well as an implementation schedule.
Japan
The government and industry are collaborating on a commitment set by Prime Minister Abe for at least 80 banks to establish open APIs by 2020. Amendments to Japan’s Banking Act in June 2018 established requirements for partnerships between fintech payment operators and financial institutions, aiming to formalise registration rules, standards, and the development of open API systems by June 2020. This focuses initial open API requirements on the payment industry, as part of a broader push to increase the role of non-cash payments in Japan.
Malaysia
In January 2019, the BNM (Bank Negara Malaysia) released its Policy Document on Publishing Open Data using Open API (the Policy Document), which set out the BNM’s guidance on the development and publication of Open Application Programming Interface (Open API) for open data by financial institutions. The BNM aims to encourage open banking through the use of Open API, which enables third-party developers to access data without needing to establish a business relationship with financial institutions. While not mandatory, financial institutions are encouraged to adopt Open Data API Specifications recommended by the Open API Implementation Groups for credit card, SME loans and motor insurance products.
Mexico
Implementation is not expected until the secondary dispositions of the fintech law are due in March 2020. Implementation will likely take place in phases, with the first phase requiring a regulatory sandbox to test Open APIs. Regardless, Mexico’s embrace of Open Banking pushes its fintech sector further ahead of most other countries in Latin America.
Switzerland, Indonesia, and China have also initiated moves towards Open Banking. However, adoption remains limited.
South Korea, Bahrain, Brazil, Canada, and Thailand are chasing closely behind as fast followers.
At the earliest stage of development are the US, Chile, Nigeria, Kenya, and Rwanda.
Open Banking Initiative On A Bank Level
While several strategic initiatives are happening at a macro level, banks are taking their own initiatives to move ahead and win in a world where Open Banking is the norm. One of which is Taiwan’s Taishin Bank, Winner of Best Open Banking Initiative at the recent Global Retail Banking Innovation Awards 2019.
Taishin Bank’s Richart was developed as an open bank, which integrates all the services that customers need in one platform.
From account opening, saving money, investing, to foreign currency exchange, Richart and its partners created a user-centric digital environment to respond to users’ expectations, providing customers with more innovative and complete financial services with partners from different industries, including the telecom company, FinTech start-ups and insurance companies.
Through its strategy, Taishin Bank conquered three major pain points of its customers:
Information isolation
In the past, customers need to fill out replicated application forms when they apply for different financial services. To save time for customers, Richart used open API to transfer customers’ information between different partners and help customers fill out forms automatically. Once customers become Richart members, they will no longer need to fill out forms when they apply for other financial services on Richart App. By simply clicking a few buttons, customers can easily complete their application of various financial services such as insurance purchasing, foreign currency exchange, and investing.
Service isolation
Taishin Bank provided customers with a service that meets all their needs in one versatile platform. Customers in Taiwan usually have 5 or 6 different accounts to manage different services such as insurance, foreign currency, investment etc. – but with Richart, they only needed one account. Customers no longer need to memorise several different accounts and passwords. In addition, they are able to manage and keep track of different financial products in one App and one account.
Channel isolation
Taishin Bank has also extended Richart’s financial services to LINE, the most popular instant messaging APP in Taiwan, allowing more than 6 million customers to enjoy its services more easily and conveniently. With this breakthrough, customers can now enjoy financial service to check their transactions and reach out to Richart customer service through a common channel they use every day without logging in the banking App.
Through the competitive and integrated products Richart provides with its partners, they have attracted more than 1,400,000 applications for Richart’s saving accounts – more than 70% of them are aged 35 or under, and more than 74% of them are first-time customers for Taishin Bank.
Also, via the partnerships with FinTech startups and companies from different industries, they were able to provide their customers a more complete financial services without building up a whole new system. Costs related to system infrastructure, maintainance, and labour have been reduced by 30%.
As such, Richart has become the most popular digital bank in its market. According to a 2018 customer satisfaction survey, over 95 % of its customers showed high satisfaction and strong willingness to continuously use Richart and recommend it to their friends.
Open Banking Will Make You Win
The old rules of banking don’t apply anymore. As digital banking grows and fintechs continue to introduce innovation to the market at a breakneck speed, embracing this brave new world of open banking will prove to be a long-term win, even for traditional banks.
According to a survey by Accenture, 90% of bankers believe open banking will boost organic growth by up to 10%. That does not mean though that it will be a smooth ride. Indicators coming out of European banks reveal that resistance among incumbent banks will be great and that change might come slower than what’s ideal or is required. The onus will be on those banks who can see the future before it happens and are bold enough to take action, now. The future is open. Wide open.
90% of bankers believe open banking will boost organic growth by up to 10%.
