As a frontrunner in the region’s thrust to boost digital-everything financial services, Singapore is setting the pace for Open Banking innovation.

Open Banking is no longer on the horizon—it has arrived in the region.

At the end of last year, Singapore had launched a platform that enables its citizens to consolidate their personal financial data from various banks for a more seamless banking experience. Named the Singapore Financial Data Exchange, (SGFinDex), such an infrastructure is the first in the world and is part of a national move to promote ‘open banking’.

The launch came shortly after the Monetary Authority of Singapore (MAS) had issued four digital bank licences. The incumbent banks had been preparing for competition for quite some time, by undertaking extensive digital transformation in the past decade and delivering new digital offerings to customers, especially amid the pandemic.

With the launch of SGFinDex and the arrival of the digital banks, there is a greater urgency for the incumbents to evaluate their differentiating value proposition and adopt innovative open banking strategies.

What is Open Banking?

This is a secure way for banks to share financial data and services with third-party providers (e.g., fintechs) with customers’ consent using technologies such as application programming interfaces (APIs). Open banking defies one of the core principles of banking (that customer information should be protected as a value asset) by sharing the data in open and collaborative ecosystems.

The collaboration which open banking fosters allows banks to gain greater insights by safely and securely sharing customer transaction data with third-party stakeholders, and this can be used to provide personalized recommendations to customers.

For consumers, not only can this help to improve the banking and payment experience, it can transform financial planning by breaking down information silos and enabling vendors to have a consolidated view of their personal financial information.

Off to a good start here

Europe and the UK are forerunners in the Open Banking push. Both the second Payment Services Directive (PSD2) in Europe and the UK’s Open Banking regulation were introduced to help drive adoption.

These require financial institutions to share consumer financial data with non-banks with the permission of the account holder. The intent is to enable secure access to data and level the playing field for third parties in order to drive innovation in the finance industry and encourage open banking.

In South-east Asia, Singapore has taken a more market-driven approach in comparison. MAS spearheaded several initiatives, such as the development of an API playbook (2016) and the introduction of the API Exchange (APIX)—an open API marketplace and sandbox (2018). However, the country has not passed any open banking legislation like Europe or the UK has. Nonetheless, there has been much activity within the financial sector, with banks creating their own API marketplaces or embedding themselves into third-party ecosystems. For instance, the API platform of DBS has over 150 APIs and businesses in the country can tap on services to provide different payment options.

The launch of SGFinDex is another step forward in the country’s open banking journey, and we can expect more updates in the next phase of its development. Right now, it can only aggregate certain financial information such as data on deposits, credit cards, loans and investments.

In future, the platform will expand to include data from the Central Provident Fund Board (CPF) and Housing Development Board (HDB) as well as data from insurance companies. This will help to simplify and provide greater transparency in the financial services industry.

Privacy and fraud issues

Amid the fanfare, concerns around security, privacy and fraud remain. The main concern revolves around how banks can ensure privacy and security once the data is beyond their walls. Fraudsters could potentially take advantage of APIs to hack into accounts, and this is a risk for consumers, banks and third-party providers themselves.

These threats mean that the usual cybersecurity protocols may no longer be enough. Instead, banks need to put in place more robust infrastructure and capabilities to identify third-party API vulnerabilities.

Apart from the adoption of multi-factor authentication, we can expect AI and machine learning systems to play a bigger role to analyze the transaction data and look for suspicious activity.

As banks begin to adopt more open banking strategies, these advanced systems will be required to help alleviate consumers’ security concerns. 

From APIs to cognitive technology

One of the biggest challenges faced by banks is the siloed systems architecture that makes it difficult to extract data to create new offerings for customers. APIs can offer an integration layer across multiple systems, allowing data to be extracted and ‘cross-pollinated’ to generate exciting value propositions. Beyond the creation of new financial products, APIs also empower banks to position financial products where and when people need them.

With open APIs, financial institutions are free to choose their entry point in the consumer journey. For instance, when considering a housing mortgage, finance offers can be positioned earlier in the customer journey during the property browsing stage. In the case of a car buyer, real-time decisions on personal lending could be made in the car showroom. Data can also be harnessed to create geo-sensitive advertising that promotes products where and when they are wanted.

Ultimately, the idea is to shift from simply offering financial products to more sophisticated ways of enhancing the customer experience and driving loyalty.

In addition to APIs, we are currently seeing the next generation of ‘cognitive technology’ being developed and deployed. These applications will work across a bank’s entire technology stack to provide more intuitive experiences to customers.

Machine learning, deep learning, natural language processing and a large number of AI disciplines will create new opportunities to provide value-added services for customers, providing additional support such as optimized Know Your Customer (KYC) products.

As a first adopter of open banking in the region, Singapore is building a more-interconnected ecosystem, and adoption looks set to continue at an accelerated pace this year. Success depends not just on how fast the ecosystem can adapt and collaborate.

We have already seen partnerships between traditional financial institutions and fintechs in the country’s increasingly competitive landscape. This will also pave the way for a new world of possibilities and reinvent the banking experience for the next decade of customers.