Open Bank­ing – China

While China has achieved high lev­els of dig­i­ti­za­tion of its bank­ing sec­tor, open bank­ing is still in its in­fancy:

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Open bank­ing’ as a con­cept is rel­a­tively new in China, but it does not mean the coun­try has not em­braced it. In early 2012, Bank of China had ini­ti­ated what is called an open plat­form for bank­ing and in fact im­ple­mented such a con­cept, mak­ing sev­eral ap­pli­ca­tions like mo­bile pay­ment, in­vest­ment and wealth man­age­ment and cross bor­der fi­nan­cial ser­vices avail­able through some 1600 in­ter­faces. It went ahead and cre­ated APIs to es­tab­lish con­nec­tions be­tween fi­nan­cial ser­vices and users. While be­ing re­spon­sive to the con­cept, the coun­try was also aware of the risks in­volved on ac­count of the open­ness.

In spite of the early start, open bank­ing is con­sid­ered in its in­fancy still in China and it is yet to have counter mea­sures for risks and hur­dles like dif­fer­ing stan­dards, lack of mech­a­nism for ac­cess, weak data se­cu­rity pro­tec­tion and ma­li­cious calls in the in­ter­face. It is in the process of ob­serv­ing how open bank­ing in coun­tries like the UK and Aus­tralia is evolv­ing, es­pe­cially through in­ter­na­tional col­lab­o­ra­tions for reg­u­la­tory su­per­vi­sion and for es­tab­lish­ing uni­fied tech­nolo­gies, data stan­dards and norms, as well as the data se­cu­rity pro­tec­tion.

BANK THAT LEADS

China’s first dig­i­tal bank, WeBank, pro­moted by Ten­cent, is today a true ini­tia­tor of open bank­ing in the coun­try. At the Money 20.20 in Sin­ga­pore, the bank’s CIO Henry Ma show­cased the fu­ture ‘Open Bank­ing’ that the bank is adapt­ing and re­vealed the ‘3O’ par­a­digm of open bank­ing ser­vices. While the tra­di­tional def­i­ni­tion of open bank­ing is that it is a plat­form where data, al­go­rithms, trans­ac­tion records and pro­ce­dures are shared within the ecosys­tem to pro­vide ser­vices to part­ners in­clud­ing c us t o mers, e mploy­ees, t hi r d par t y de­vel­op­ers, fin­tech com­pa­nies and ven­dors, Ma main­tained that it is more than API tech­nol­ogy and is char­ac­ter­ized by the ‘3O’ Par­a­digm, namely ‘Open Plat­form’, ‘Open In­no­va­tion’ and ‘Open Col­lab­o­ra­tion’. He told the au­di­ence that the open bank­ing model his bank vi­su­al­izes en­ables banks to em­bed their prod­uct, risk and tech­nol­ogy ca­pa­bil­i­ties into spe­cific in­dus­tries, while in turn banks are able to ap­proach their tar­get cus­tomers more di­rectly. Banks can then pro­vide con­text-based fi­nan­cial ser­vices where cus­tomers need them most un­der var­i­ous sce­nar­ios, while part­ner busi­nesses with­out fi­nan­cial ex­per­tise and ca­pa­bil­i­ties can bet­ter serve their cus­tomers. As a re­sult, banks can reach the tra­di­tion­ally un­banked or un­der­banked long tail mar­ket and ef­fec­tively pro­mote in­clu­sive fi­nance.

Ma re­vealed that WeBank has taken mea­sures to counter se­cu­rity threats that come up in the wake of the open­ness of the sys­tem and has ini­ti­ated end-to-end cy­ber­risk as­sess­ment mech­a­nisms and apply in­no­va­tive tech­nolo­gies such as ‘Open Con­sor­tium Chain’ to sim­plify con­nec­tiv­ity with part­ners, es­tab­lish com­pre­hen­sive busi­ness con­ti­nu­ity plans, in­tro­duce blockchain-based dis­trib­uted iden­tity and privacy pro­tec­tion so­lu­tion.

KEEN RE­SPONSE

‘Open bank­ing’ has at­tracted tremen­dous at­ten­tion from banks in China in 2018 and many of them have launched open bank­ing plat­forms based on API tech­nolo­gies. Un­til re­cently, much of the growth has oc­curred with­out any man­dates, API stan­dards or reg­u­la­tory pro­tec­tion of cus­tomer data. But this is chang­ing, with Chi­nese reg­u­la­tors step­ping in to con­trol many of the prac­tices that bor­der on threat to se­cu­rity. The gov­ern­ment has been proac­tive in this even as it does not want to slow down in­no­va­tion. It has cre­ated frame­works that en­sure growth and at the same time pro­tect con­sumers. It is now in the process of en­act­ing reg­u­la­tion that is akin to Europe’s Gen­eral Data Pro­tec­tion Reg­u­la­tion (GDPR) and reg­u­la­tion of the open bank­ing sec­tor is on the anvil.

An­other fil­lip for open bank­ing in the coun­try is the de­mand from the coun­try’s ever ex­pand­ing, dig­i­tally con­nected mid­dle class. Most of the Chi­nese peo­ple do not carry cash or cards and they pre­fer to use mo­bile bank­ing. This high dig­i­tal adop­tion rate is the re­sult of Chi­nese con­sumers’ will­ing­ness to share data with in­sti­tu­tions. Re­search in this area has shown that un­like bank­ing cus­tomers in many western economies, Chi­nese con­sumers are more pos­i­tive and hap­pier to share their trans­ac­tional data with fin­techs.

REG­U­LA­TIONS YET TO COME

While Chi­nese reg­u­la­tors are yet to roll out reg­u­la­tions for open bank­ing, the coun­try’s pri­vate sec­tor is pur­su­ing the use of open APIs on its own. Added to this is the ac­tive in­volve­ment of Chi­nese fin­tech com­pa­nies. Com­pa­nies like Ant Fi­nan­cial and Ten­cent lever­age open APIs to al­low third par­ties to of­fer ser­vices to their cus­tomers and make data more por­ta­ble within their ecosys­tems. For ex­am­ple, the countr y ’s lead­ing in­sur­ance com­pany Ping An In­sur­ance has in­tro­duced ‘Smart In­sur­ance Cloud’, which is a plat­form through which Ping An of­fers open-source APIs to its part­ners. These de­vel­op­ments are bound to mo­ti­vate the reg­u­la­tors to frame rules gov­ern­ing open bank­ing in the coun­try.

It will be in­ter­est­ing to see how open bank­ing in China will evolve. Today the coun­try’s fi­nan­cial ser­vices sec­tor is at a cross­road. Reg­u­la­tors need to take crit­i­cal de­ci­sions about how to put in place the frame­works that sup­port open bank­ing, en­sur­ing that there is no de­mo­ti­va­tion for in­no­va­tion and there is se­cu­rity of the per­sonal data and that the sys­tems are ever safe from in­fringe­ments.

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