“Banks have a wealth of historical customer data at their disposal and yet have not been well equipped to translate that information into actionable insights and better personalised services,” says Marc Entwistle, Principal of Digital Financial Services at Oliver Wyman, and a Co-founding director and board member at the FinTech Association of Hong Kong.
Ultimately, Entwistle says, the industry is aiming for a level of change that “all banks know needs to happen, yet for many banks the commercial upsides have yet to outweigh the transformational complexity and potential risks.” However, the customer data that they possess could be a powerful competitive driver, if not for the banks themselves to use, then for the third-party services that Open API will enable.
“In theory, banks should know a lot about their customers – and yet historically this potential has underwhelmed when considering the lack of personalisation in current products and services. One solution, to spur innovation and move that market forward, is to level the playing field by opening up access to consumer data, introducing both competitive dynamics and collaborative opportunities with digital partners.”
He says that whilst third-party handling of customer data continues to require scrutiny, if anything, the banking world’s adoption of Open API would strengthen security.
“API level sharing data is already vastly more secure than the volumes of unencrypted data shared over common forms of file transfer. A basic traditional banking analogy could be after signing up to a new bank, the customer typically receives an ATM card and security code. These items are shared somewhat securely by sending in different envelopes, yet easily intercepted due to the clear sender and recipient information marked on the envelope and transmission via the public postal mail service. Remarkably in many markets this is still viewed as secure.”
“Undoubtedly this is far less secure than provisioning digital payments functionality directly within the customer’s app, on the phone they already own and requiring biometric (face or fingerprint) authentication. In this way APIs are somewhat similar in that we’re now enabling direct data sharing between different authenticated parties.”
While banks are being eased out of their comfort zone, there may be an initial reluctance to do so given that this upheaval could introduce short term risks, even while moving towards a less risky means of operating in the longer term, which, many agree, should be the ultimate goal.
“There will inevitably be new risks to mitigate because Open API development is still relatively new to financial services. There are ongoing implementation details to be ironed out but fundamentally we’re moving to a far more secure means of data sharing with third parties. Some of the lag is more to do with the inherently risky nature of financial services, where we handle a lot of sensitive customer data, in what is rightly a carefully regulated industry,” Entwistle says.
Banks have been previously “relatively siloed” with different banks providing their own services directly, whereas “now we’re moving towards a future where banks are more modular and open to servicing customers both directly and indirectly through partnership based relationships,” which can include integration of different products and services.
This has created new opportunities for fintech players, who are not always necessarily going to be the provider of these new services to end customers, but may simply be looking to provide the building blocks to help banks get there themselves.
“As Hong Kong opens the door to new virtual banks, robo wealth advisors and digital payment players, banks are facing new competitive dynamics and a big shift in what was previously a traditional consumer banking market. The development of open banking provides an opportunity for incumbents to rapidly launch and scale a holistic range of additional services and maintain consumer relevance.”
Hungry for ideas
“To serve our customers better, the objective is not to bring in technology for the sake of technology…. we think open banking could be one of the approaches to help us improve that,” says Hang Seng’s Gilbert Lee, Head of Strategy & Planning and Chief of Staff to the Chief Executive of Hang Seng Bank.
Primed for partnership
“We are keen to drive the development of new smart banking initiatives and industry partnerships to better support our customers,” says Daniel Chan, HSBC’s Head of Business Banking, Commercial Banking, Hong Kong.