The Fintech landscape in Southeast Asia has grown tremendously over the last 10 years. For one, Open Banking, which was initially perceived as a good-to-have, has now become essential due to many industry factors, such as a booming e-commerce industry and a large growth in cross-border business activities.
Open Banking, in layman terms, is the “opening up” of banks to external vendors and developers. This creates a controlled, and in most cases, regulated access for Third-Party Providers to make use of banking services and customer-permissioned data — services and data which would previously have been siloed behind secured servers and legacy systems.
You might then wonder why Open Banking is useful, and why banks should adopt Open Banking, which may come with the risk of subjecting their confidential and critical information to online attacks and piracy.
Similar to the past trends of open-source software and open API applications, there can be many new ideas and innovations that will be able to benefit as a result of the power of the collective mind.
How Open Banking can Accelerate Innovation
Over the years, banks have created many financial services and products to serve consumers and businesses. They have done well addressing the core financial needs of their customers. However, when it comes to innovating beyond their core strengths and expertise, it is sometimes beyond the bank’s resources and capabilities to do so.
Banks could counter this issue by opening up access to some of their financial services and data to developers, financiers, and potential users. This financial ecosystem could then leverage everyone’s various strengths and expertise to develop useful solutions and use cases to provide a greater variety of improved financial products and experiences, that are able to cater to different customer needs.
Resistance to Open Banking
Although the benefits of Open Banking are easy to understand, the main reasons for the slow uptake in some regions is due to resistance and inertia. Those unfamiliar with Open Banking may be concerned about unnecessarily exposing themselves to potential risks such as fraud, security breaches, and regulatory non-compliance.
Furthermore, many large financial institutions have multi-layered organisations with many legacy systems which are deeply entrenched. This means that an extensive amount of time and resources would be needed to overhaul systems, educate stakeholders about the benefits of Open Banking, and ensure that the proper procedures are implemented.
Open Banking in Southeast Asia
While the US and European markets are global leaders in Open Banking, there has been significant progress in the Asia Pacific region. For instance, in China, Open Banking has been fairly widely adopted, and this is predominantly market-driven, as large Chinese banking groups face fierce competition from Internet-based companies such as Ant Financial.
On the other hand, in some Southeast Asian markets, such as Singapore and Indonesia, the local regulators have been promoting and encouraging the adoption of Open Banking. These regulators have published guidelines on APIs and appropriate frameworks for third-party access to the banks’ data. In other Southeast Asian markets where guidelines have yet to be published, most central banks have initiated their own payments-related APIs in order to facilitate improved e-commerce transactions .
Generally, the largest banks in each market have taken proactive steps to open up their APIs and work with Open Banking platforms such as Finantier, Brankas, and Brick to develop their own frameworks and guidelines.
Impact of Open Banking on Fintech Startups
In the past, in order for Fintech startups to successfully launch their own products, they will typically have to go through the process of building their own core banking systems, such as risk management and payment systems. They would then need to undergo robust and rigorous security checks, and acquire the necessary licenses and compliance approvals. Alternatively, they would have to integrate with legacy banking institutions, or form strategic business partnerships with them. These processes would typically take at least one to two years, and require a lot of resources as well.
However, with Open Banking, startups can now focus on what they do best, while leveraging existing banking systems to develop innovative and personalised solutions for consumers. Consequently, the duration required for a Fintech startup to bring their product to market has been significantly reduced. For instance, Gromo, a social media platform dedicated to financial products, was able to reduce their go-to-market timeline by up to 80%, by resolving banking integration challenges using Decentro’s Account Validation API.
On the digital payments front, startups are able to roll out their own e-wallet capabilities, while depending on banks to provide ledger systems, account opening services, and cash management services in the background. They may also offer white-labelled credit cards and Buy Now Pay Later services to new or underserved market segments, while utilising banks’ credit facilities. Additionally, startups can easily launch products quickly across various markets by making use of the local banks’ licenses, instead of applying for their own license.
In both of his articles published on e27 last month, Diego Rojas, the Co-Founder and CEO of Finantier, has discussed how Open Banking has brought about Open Finance, as an extension of Open Banking data-sharing principles — to provide access to financial data, in order to enable third-party providers to have a better idea of a consumer’s financial position.
Although it might take a while for more banks to adopt Open Banking, we are starting to see that the possibilities with Open Banking are limitless. It is now up to us to decide how to best utilise the extensive financial data and information available.
To all founders and startups who are interested in learning more about Open Banking, we would like to invite you to join Diego Rojas and David Engel, Fintech Specialist at AWS, for a webinar on 24th May to learn more about the Open Banking landscape in Southeast Asia and how to tap on this burgeoning opportunity to accelerate the launch of your Fintech innovation. Eligible startups which attend the webinar will also stand to receive complimentary AWS Founder Activate credits after the event.
Interested to join? Register here.
This article is produced by the e27 team, sponsored by Plug and Play
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