Open Banking - a very global business
The year is coming to a close, with continued unease about data and consent, confusion about strong customer authentication and liability, issues related to security and the regulatory aspects of monitoring banking operations, and discussions about personalisation, customer experience and so on. In all seriousness, 2019 was supposed to be the one when the 'quiet revolution' took off.
The key elements of a thriving Open Banking regime We bring good news. Different jurisdictions worldwide are adopting their own versions Open Banking. At the moment, there are many Open Banking initiatives and they cross several dimensions, including implementation timelines, the scope of services, level of standardisation, and the type of institutions involved. Although there is little data available about what makes a certain regime successful in shaping an Open Banking ecosystem, however, Open Banking is alive and kicking all over the world.
Throughout 2019, INNOPAY and The Paypers have interviewed experts, reviewed legislations, regulatory standards, whitepapers and reports produced by regulators, industry bodies and specialists involved in Open Banking to form an understanding of where UK, Europe, US, Hong Kong, Singapore, Japan, Australia, New Zealand, India, and Mexico are heading, what are the key elements of a thriving Open Banking regime and the extent to which the wave of regulatory, technological, and financial innovation has evolved so far.
INNOPAY has delineated eight building blocks that are essential to any Open Banking regime and paramount in fully understanding the complexity of this regulation. These building blocks - Initiator, Applicability, Standardisation, Scope of services, Timelines, Commercial model, Security and Accessibility, and Thirdparty licensing - provide a good indication of all dimensions that regimes should consider. For more insights about the key differences in the current Open Banking state of play per region (based on the model of the eight building blocks), best practices identified across the different building blocks and the strategic considerations for regulators, banks, and third parties, check out the recently launched The Paypers Open Banking Report 2019 and the in-depth analysis of the key-decisions for the future ecosystem.
Wrapping up the year, the UK and Europe are the pioneers and the frontrunners of Open Banking. In these jurisdictions, regulators have provided the conditions to accelerate migration towards Open Banking through a series of reforms aimed at releasing the financial data of consumers from the banks' ownership and into the hands of consumers.
The development of the ecosystem (infrastructure, regulatory clarity, third-party providers accreditations, propositional uptake, security etc) has come gradually and is now gaining pace. Elsewhere, markets push for Open Banking. Singapore, Hong Kong, Japan, New Zealand, India, Australia are at the top of the pack and rank as early adopters.
The adoption of Open Banking has been increasing worldwide with the Australian Parliament passing the Customer Data Right legislation on 1 August 2019. Thereafter, the big four banks in the country were asked to enable the availability of the required financial data for beta testing.
The Australian Government had decided to phase in Open Banking - consumers can direct the major banks to share credit and debit card, deposit and transaction data from July 2020, and mortgage and personal loan data from November 2020.
In Singapore, the Government is committed to an organic transition towards Open Banking, more than a coercive framework of deadlines. The Monetary Authority of Singapore (MAS) encourages financial institutions to adopt APIs as a key foundation layer for innovation. Along these lines, together with the Association of Banks in Singapore, MAS launched a Financeas-a-Service API Playbook. With the Financeas-a-Service API Playbook, banks have a common guide to identify and develop APIs.
In Hong Kong, the monetary authority released a report on open APIs, a first step for the development of the ecosystem, with recommendations on standards and protocols, as well as an implementation schedule. In Japan, government and industry are collaborating on a commitment set by Prime Minister Abe for at least 80 banks to establish open APIs by 2020. Amendments to Japan's Banking Act in June 2018 established requirements for partnerships between fintech payment operators and financial institutions, aiming to formalize registration rules, standards, and the development of open API systems by June 2020. This focuses initial open API requirements on the payment industry, as part of a broader push to increase the role of non-cash payments in Japan.
South Korea, Bahrain, Brazil, Mexico, Malaysia, Canada, and Thailand are chasing closely behind as fast followers.
In January 2019, the BNM (Bank Negara Malaysia) released its Policy Document on Publishing Open Data using Open API (the Policy Document), which set out the BNM's guidance on the development and publication of Open Application Programming Interface (Open API) for open data by financial institutions. The BNM aims to encourage open banking through the use of Open API, which enables third-party developers to access data without needing to establish a business relationship with financial institutions. While not mandatory, financial institutions are encouraged to adopt Open Data API Specifications recommended by the Open API Implementation Groups for credit card, SME loans and motor insurance products.