“The Heart of Revolution”: “Open Banking” Brings Financial Empowerment to Society

July 30, 2019 - 05:17
“The Heart of Revolution”: “Open Banking” Brings Financial Empowerment to Society

Lead: The concept of "Open Banking" originates inthe U.K., along with similar concepts such as borderless banking and OpenPlatform Banking. Open Banking, through the merging of third-party data,algorithms, businesses and work-flow processes, succeeds in transforming into abusiness-driven application structure, and upgrading the entire system fromfront- to- back- office to be resigned to banking platform with that ofthird-party vendors. It is driven by customers' needs, making use oftechnologies like API/SDK as the means, and eco-system scenarios as the basisof application to provide customised services and achieve data commercialisation.

HONG KONG, CHINA - Media OutReach - 30 July 2019- As innovation of financial technologies and transformation of bankingoperations continue to gather pace since 2018, the time is ripe for "Bank 3.0",meaning digitised, smart and open. Some article claimed that 2018was the first year of Open Banking era, and assumed that Open Banking wouldfundamentally alter the business, marketing, risk control and operation modelsof commercial banks, to extend their service boundaries, and ultimately changetheir growing curves. The banking industry would take this opportunity toundergo a revolution.

In July 2018, a IDC survey of 146 Asia-Pacificbanks showed that 7/10 banks see Open Banking increasing their customer reach, and4/10 of these see alternate direct/ indirect revenue streams in Open Banking.In view of less than 10% of banks today can claim to be "innovators", it hasthe potential to level the playing field among banks. The survey estimated thatmajority of banks are expected to ramp up their capabilities in terms of OpenBanking between 2018 and 2020.

As OpenBanking is gradually becoming a norm globally, majority of retail banks expressthe willingness to 'embrace' it. More and more positive attitude is attributedto the situations of different markets throughout the world, in whichrepresented by the UK and the EU that thebanks are more specifically to satisfy regulatory requirements, whereas inwhich represented by South East Asia and China, most of those are initiated by financial-technologyinnovation and driven by the market itself.

So,what exactly is "Open Banking"?

Theconcept of "Open Banking" originates in the U.K., along with similar conceptssuch as borderless banking and Open Platform Banking. OpenBanking,through the merging of third-party data, algorithms, businesses and work-flowprocesses, succeeds in transforming into a business-driven applicationstructure, and upgrading the entire system from front- to- back- office to beresigned to banking platform with that of third-party vendors. It is driven bycustomers' needs, making use of technologies like API/SDK as the means, andeco-system scenarios as the basis of application to provide customised servicesand achieve data commercialisation.

Opportunities for accelerating Open Banking in HongKong and Taiwan

There is a mode for the Open Bankingdevelopment. Inthe U.K., Open Banking is a trend or concept that arises from regulatory needs.To putit another way, the regulators proactively issue guidelines or decrees to oblige traditional banks andfinancial institutions to share customer information for free or for a fee. InHong Kong and Taiwan, Open Banking is also driven by laws or regulations.

In Hong Kong, "Open Banking" is raging. At this moment, Hong Kong'sregulators are employing a wait-and-see approach with the hope that it willallow both players in private and public sector to form a rhythm and work outany potential hurdles before the Open Banking wave crests.

InJuly 2018, Hong Kong Monetary Authority issued a revised API framework for OpenBanking. The framework would be implemented in four phases and was aimed atencouraging provision of innovative, general services to enhance customerexperience using technology. As at the end of January 2019, the first phaseinvolving publication of banking retail product information including that oncredit loans, credit cards and wealth management, was completed. Phase Twoinvolving account-openingusing third-party service providers' apps would be implemented by the end ofOctober this year.  The third phaseinvolves accessing customer account information and the fourth phase involvesmaking payment and transfers transactions. The time frame for the last two phaseswould depend on the progress of the previous two phases.

FinancialSupervisory Commission (FSC) in Taiwan has adopted Hong Kong's mode, which is promoted by banks and third-party service providers(TSP). Open Bankingis to be achieved through three stages. The first stage of openness aims at the banks'commodity information, such as credit card, fund, mortgage interest rate andother public information. The second one is to open customers' information by obtaining their authorisation.Meanwhile, TSP canprovide account integration services. And the last but not the least one is to open informationfor trade.

The FSC instructs local Bank Association to study the scope and self-regulation of cooperation withTSP and the financial institutions are responsible for formulating common API standards, including technology and information security standards. The Global Research & IndustryAlliance under National Chengchi University is responsible for reviewingfinancial institutions' files in the aspects of technology and informationsecurity. It also acts as a platform for Open API verification and testing, andconsolidates the views of TSPs for reference.

OpenBanking: The flip side of the coin is risk released

In China, the term "Open Banking" is relatively a new concept,but that is not to say there is no practice or case study of rendering servicesand businesses in an open way. As early as 2012, Bank of China had proposed aconcept of establishing open platform. In 2013, it announced its open platform,making a host of applications available, such as mobile payment, investment andwealth management, credit card management, account management and cross-borderfinancial services as well as more than 1,600 interfaces. Subsequently, themajor banks began to explore the ways, through opening up API, to achieveconnections between financial services and user scenarios. By continuouseffort, the banks attempted to offer better customer experience in the contextof weakening collaborations between banks and current financial technologies.

The financial innovation of OpenBanking in China is remarkable and successful even when viewed globally. But the flip sideof the coin is, the greater the opportunity, the higher the risk.

In other words, the risk mainlyfocuses on its openness. Partners provide scenarios for collaboration, butthere is little output about the core capability for risk control. Banks shouldconsider and be well-prepared of whether they could response to the risks aboutinput, resonance effect, and unpredictable matters, and buildsustained-releases and isolating mechanisms.

In addition, as Open Banking inChina is still in its infancy, there are many risks and hazards, such as different standards and norms, lack of mechanismfor access, weak data security protection, and malicious calls in theinterface. In the future, in order to solve the problems above, callsfor international collaborations in terms of regulatory supervision for establishingunified technologies, data standards and norms, as well as the data-securityprotection and internal control mechanism are essential and critical.

Experiansecures the implementation of OpenBanking during the critical juncture ofbanking Innovation

China's Open Banking process is experiencing acritical transition. Professional partners as well asadvanced and maturemechanism mayhelp to form a stable transition. Thus, Experian -- with long term commitment toproviding sophisticated decision-making systems and analytical services forfinancial institutions -- has a sound and fruitful experience.

Experian Greater China has becomea strategic partner for providing Business Credit Services, Decisioning &Analytics, Identity & anti-Fraud Solutions, DataQuality andAudience Targetingservices. Thecompany has established strategic partnerships with many well-known financial institutions in China, including ChinaUnionPay as well as top ten banks in China, Shenzhourong, JD Finance andSunshine Insurance. Provision of services to banks are our core business inChina.

As the concept of Open Bankingbegan to draw attention last year, competitions among major traditional banks in China get into a white-hot stage.Experian's explorationsin the reform of Open Banking initiatives in Europe and the UnitedStates have enabled it to formeffective solutions, and hence to provide foreseeable insights and professional services to Open Bankingendeavors from four dimensions, namely, strategy, data, insights andimplementation. Throughthose exercises, Experian enabled traditional banks to aid the Open Banking in a safeand timely way.

Take the affordabilitytest operations in the U.K.forexample. A customerallows Experian toaccesshis/heraccount informationwhich canthen be verified using existing information in the possession of Experian andstatements provided by PSD2. All relevant information is then combined onVerdus platform, whichis actively accumulating and managing the data exchanged between the creditorand banks, constantly monitoring the income and outstanding debts, in order to estimate the customer's monthly disposableincome and his/her affordability. Proper recommendationof credit loanproduct is recommended and the needs ofan enhanced loan application and user experience can be met upon customer'srequest.

Strategy consulting: during the transition period fromtraditional ways to Open Banking operations, banks have to make strategicchoice in the face of market competition or regulatory demands, based on theirown market positioning and risk aversion. They are forced to consider whetherto actively build personalised services in order to acquire customers or capturemarket share or adopt a wait-and-see attitude. In this regard, Experian's extensiveexperience in strategy management for retail banking as well as its deepunderstanding of the Chinese market garnered over decades of operations, aswell as an experienced and professional team in the banking industry and OpenBanking, will enable it to help banks analyse their existing situation andformulate appropriate Open Banking strategy along with specific implementationmethods.

Atthe core of Open Banking is its data. To be truly 'open', data must be freely accessible, and financialinstitutions have to consolidate internal data and output them for applicationin conjunction with external data. Experian possesses unparalleled advantage inthe area of data analysis. It is not only offering data integration services byits experienced team but providing sophisticated data integration products tocarry out automatic integration and construction of wide range of data. Anexample is Experian's CrossCore in anti-fraud field, which can actively incorporatediversified data in a precise and effective way.

Insights: Voluminousdata are analysed using new technology in order to obtain unprecedented insights.To achieve real-time effect data analysis and reaction, institutions would needto rely on Experian's breakthrough in technological application and real-timeconnection technology. Indeed, the process of translating information into insights has always beenExperian Consulting's strength. Experian has assiduously made long-terminvestments in new technologies and applications, one of which is itsinnovative laboratory X-Lab,which constantly develops products, technologies and applications that meetcustomers' needs. In addition, Experian strengthens and upgrades traditionalrisk assessment models using new information from Open Banking, to build a more powerfulrisk assessment model platform. The platform enables Experian to help formulateinnovative strategies for Open Banking, as well as forecast better services orproducts -- such as acreditcard or credit loan products -- for customers befitting their current status.

Implementation: Implementationcalls for combining strategies, information and insights, connecting all thedots in the customer's system environment. For this, Experian's productportfolio covers basicallyall aspects of risk management, including information integration platform, frauddetection and through credit risk management. As far as the customer is concerned, basically Experianis capable of meeting all needs throughout the whole life cycle.

Experianbuilds new service eco-system for Open Banking through Fintech

Fundamentally what drive thechanges in Open Banking are new, evolving banking technologies and customers'consumption preferences.

Open Banking is truly focused oncustomers' core concerns. For the customer, there is greater freedom to compareand seamlessly switch financial service providers. The customer's financialstatus is considered as a whole. As there is no need to deal with multipleaccounts, his needs for financial services such as account processing can alsobe met in a highly-efficient manner, thereby allowing him to switch accounts aswill.

At present there are numerousplatforms with advanced financial technologies including Internet-based frauddetection, Internet-based payment integration, Internet-based wealthmanagement, artificial intelligence and blockchain SaaS platform. However,since the financial technologies only handle general applications, to applythem to specific scenarios would require considerable configuration, which maybe too much effort for small and medium banks.

Through assiduous development ofinnovative products and services in keeping with the pace of technologicaladvancement, Experian has been able to participate in and even take leadershipin linking traditional closed system of banks with the Internet eco-system,thereby creating a new frontier for banks. Banks and customers are connected ina new manner such that in the Internet eco-system, banks will have the opportunity to come intodirect contact with customers, helping them to deeply understand relevantcustomer data with the ultimate goals of having precise understanding andinsight into customers' true and even potential needs.

With this the service nature of OpenBanking can truly be showcased, not least because of Experian's support forsuch technology. Banking is the product of socio-economic eco-system and thegrowth of banking and finance industry will prove essential for theeco-system's prosperity and growth.