In the IDC Financial Insights report, Regulatory Guidelines for Open Banking: Asia/Pacific Markets and their Varying Paths to Open Banking, Michael Araneta (photo right), assistant vice president for IDC Financial Insights, states, "Banks should initiate Open Banking strategies, even without the strong regulatory push seen in Europe. Success in the digital era will be in generating new value from business platforms and partner ecosystems — whether it is called Open Banking or not. This should be a bigger agenda for banks — not just a compliance piece or a contrivance to show concern for customers. The unbundling and rebundling of the value chain of financial services present an opportunity to truly remake the business of banking."
While Fintechs may have garnered headlines for their innovative approaches to banking, success has been fleeting due mainly to their inability to commercialize and scale their ideas. The lack of customer data, deep understanding of regulatory environments, and reach have conspired to limit success to those able to surmount these hurdles fast.
"We expect that Open Banking will inevitably be a discussion within the bank. Banks must recognize the need to embrace digital transformation related to API banking and bank-Fintech/TPP relationship at the highest levels of the organization, keeping abreast of new security solutions to support in the future as data-fueled intelligence is permeating all aspects of the business in the financial industry. Inevitably, the banks will see data as an asset and will have to consider who owns and controls the data. As banks search for ways to generate new value from their data, several new principles on data utilization may drive or hinder value generation, depending on how they are interpreted. Ultimately, the banks where data is widely accepted as an asset will drive the way to get the maximum returns on the data," says Anuj Agrawal (photo left, senior research manager at IDC Financial Insights Asia/Pacific.
As Open Banking practices take hold and financial institutions' collaboration with third-parties and Fintechs intensify, the need for unbundling and re-bundling of the value chain of financial services is crucial.
There is an old adage: “if you can’t beat them, join them.” It stands to argue that banks are losing out to Fintechs when it comes to more innovative, differentiated ways, to engage customers. That said, it is also clear that banks still have several aces up their sleeves: size and reach, and customer data are hurdles few Fintechs can boast having access to.
So a partnership is inevitable, and to the advantage of both, as commented by Agrawal: “In 2018, 30-40% of banks in the region have explored partnering with Fintechs by exposing their APIs. In 2019, we expect this number to increase to 60% across banks in Asia-Pacific.”
Banks are increasingly becoming adept at generating new or rare value from data. Hence, the need for regulatory guidelines on the sharing of data – a key tenet of Open Banking – has become certain. Aranet noted that regulators are competing to be seen as the most proactive in the region. “The regulatory framework for Open Banking will be comprehensive, touching upon various aspects of customer data protection, IT security, systemic risk, and customer fairness. Banks will need to align their Open Banking strategies with these — ideally before their competitors succeed in doing so,” he added.
"Clear guidelines from regulators on Open Banking will arguably be one of the most important parameters to measure the progress of any country on Open Banking readiness. These guidelines will need to prioritize customer data protection, providing banks with a greater sense of confidence to open up their data and have these available to third-party players," commented Agrawal.
According to Anuj Agrawal, senior research manager at IDC Financial Insights, Australia, Hong Kong, and Singapore have rolled out guidelines on Open APIs. “While India, New Zealand, and South Korea are expected to roll out their guidelines in the next 12-18 months to be followed by Malaysia and Thailand, it is the release of the first draft by China and Japan that should pose huge potential,” he opined.
Watch the full video as Agrawal shares his views on the following:
- IDC definition of Open Banking: 00:06 – 00:51
- The relationship between Open Banking and Open API: 00:51 – 1:45
- Role of regulators in Open API development in Asia-Pacific: 1:45 – 2:43
- Open API favors Fintech companies over incumbent banks: 2:43 – 2:53
- What Open Banking means Emerging Asia: 2:53 – 4:48
- New business models because of Open APIs: 4:48 – 6:35
- 2019 will see banks adopt Open Banking in corporate banking: 6:35 – 7:33
- Advice to banks on Open API: 7:33 – 9:01