Banking organizations are faced with radical changes in recent years due to the digital transformation trend, and open banking has become the focus of the financial industry. The concept of open banking was first promoted by the British government in 2015 and started officially in 2018. This concept can save users time on applying for cards or opening accounts, and for banks, they can quickly understand the needs of the consumers to provide customized services. As the Financial Supervisory Commission gradually pushes the second and third stages of open banking in Taiwan, 2020 will become an important year for the advanced deployment of financial industries.
Origin of the open banking trend
The British Competition and Markets Authority (CMA) demanded the establishment of open banking teams and the formulation of related standards in 2015; and in 2016, with the consents from their clients, the top nine banks in Britain (CMA9) were forced to provide their information to authorized third-party service providers (TSP) using open API.
Then in January of 2018, the EU implemented the “Revised Payment Services Directive (PSD2),” requiring European banks to open payment services and related financial consumption data to TSP; not only did this lower the threshold for new entrepreneurs of payment services to enter the market, it also changed the tradition of banks monopolizing related data. This drove the financial industry to launch more innovative financially transparent services, and returned data usage rights to the consumers.
Once sentence to explain Open Banking
With the consent of their clients, banks provided financial big data to authorized third-party service providers (TSP) using open API to provide clients with quick, diverse, and informationally transparent financial applications.
Three major advantages of Open Banking
Banks: Financial Innovation
Open banking will share big data and provide more innovative and diverse products and services to clients by connecting AI and other advanced technologies of financial technology (Fintech) companies, further improving consumer experiences and achieving the service goals of customization and personalization.
Third-party Service Providers: Liberate data
Obtaining precious financial data with user consent can improve the tradition of monopolizing financial data and it can accelerate the creation of environments that will help the development of financial technology and other industries, liberating the potential values of data.
Bank Clients and Financial Product Consumers: Return rights to the people
People can receive financial services that are more convenient (saves time and monetary cost) after the data is open, asset configuration and financial planning will be closer to personal needs, and the idea of “returning rights to the people” can be fulfilled.
Three stages of Open Banking in Taiwan 2020 is an important year for advanced deployment
Stage 1: “Public Data Inquiry”
This mainly refers to financial data that does not involve personal information of consumers, not direct transactions, and are public. TSP is allowed to connect to the financial and product information of different banks through API, such as interest rates, exchange rates and branch information etc., and users simply need to use the App to compare the information on financial products of different banks; for example fixed deposit rates, mortgage rates, and foreign currency exchange rates etc.
Stage 2: “Consumer Data Inquiry”
This refers to opening authorized data that requires consumers’ consent, which includes inquiries for opening accounts, credit cards, and personal information of consumers etc. Consumers can apply their personal information at different financial institutions; for example, consumers can use the personal financial information they filled out at bank A to apply for an account at bank B immediately, saving time to fill out the information again and processing costs.
Stage 3: “Transaction Data”
As the name suggests, this refers to opening and enabling the execution of all transaction data with the consumers’ consent. Consumers can use the App developed by the TSP to connect different accounts and perform debit authorization, consumption payment, and even loan settlement operations for the integration and management of funds.
In October last year, the financial open API platform created by the formerly known “Financial Information Service Center,” but later changed to “Financial Information Service Co., Ltd.”, established by the Ministry of Finance, was officially launched; this could be considered as the first milestone for the development of open banking in Taiwan.
Currently, there are a total of 18 open APIs for the first stage, which can be categorized into deposits, loans, investments, and financial management etc. The second stage “consumer data inquiry” is expected to begin in 2020; but since the second stage and third stage involves consumer privacy concerns such as TSP management, customer rights protection, and information security standards etc., the details are yet to be determined and planned by the competent authorities.
As a matter of fact, stages two and three are the highlights for realizing open banking, and this is why 2020 became an important year for advanced deployment of open banking by major financial institutions.
Open Banking Success Stories
The Competition and Markets Authority (CMA) was the first to promote open banking; its open banking business leader Bill Roberts once stated that since open banking was officially implemented in 2018, it drove over 80 TSPs on the market to provide brand new financial services; its speed of innovation is a glorious sight that has not been seen by British banks for over 200 years.
Since the EU opened the open banking policies, Allied Irish Banks adopted the API management platform Apigee provided by Google Cloud to manage the connection of applications by third-party partners, and further verify their securities. Some of the more common account information such as account balance, transaction record, installments, and automatic withholding etc. are further separated into different micro-services to make communication of different information with different partners easier.
As one of the largest multinational financial institutions, ABN AMRO also adopted Apigee to realize third-party payment service (Payments API) collaborations and attract new customers. Their own risk assessment models were also opened to other inter-industries in API form for them to perform client risk assessments, revitalizing its existing internal service into another type of business cooperation.
As for stories in Asia, there is Bank BRI; in order to promote financial services to remote island areas and provide simple financial services to over 56 million people who do not have bank accounts, micro loans are provided through dedicated applications (Pinang) using API as the core service strategy.
Since Bank BRI implemented Apigee, consumers can use the branchless agent service – Agent BRILink App to scan their IDs within 2 minutes to complete account-opening, depositing, withdrawing, and loan-processing etc., improving the work efficiency that originally required two weeks significantly, and even created over U.S. $50 million in revenue.