The views expressed in this presentation are the views of the author and do not necessarily reflect the
views or policies of the Asian Development
Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee
the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not
necessarily be consistent with ADB official terms.
How Open Banking can
support SME finance
ADBI & NCB, BANGKOK, 30 OCT. 2018
JULIEN MAHUZIER
[email protected]
Content
1.Open Banking:
1.General concept and objectives
2.Open APIs
3.Partnering with fintechs (friends or foes?)
4.Example
2.Open Banking for SMEs
1.Use cases for SMEs
2.Key enabler for SMEs growth…But not an easy journey
3.Next steps
1.Beyond APIs
2.Data governance
3.Experiment!
4.Conclusion….
Open Banking: general concepts
« Sharing banks’ data with others with consent of customers »
What sort of data?
Customer / KYC, Transactions, Other (loans, etc.)
Sharing with whom?
Other banks, Fintechs
How is the data sharing organized?
Open APIs
Customers’ explicit consent (combined with data protection initiatives)
Standards to be set
The biggest game changer of the banking industry, pushing for more
competition between institutions for the benefit of the consumers
Open Banking: a global push
PSD2 in EU (9,000 institutions impacted over 29 countries) – 2018/19
OB by CMA in UK (further than PSD2), 9 biggest banks – 2018
Open Banking in UK is being implemented earlier and offers a foretaste of
larger, regional schemes such as PSD2
Other Asia/Pacific strong players AUS (2018/19), HK, etc.
Can be found worldwide, eg in Nigeria
Starting to draw some interest in East-Africa
SEA?
Open Banking: Open APIs
API: Application Program Interface
APIs are exposing some features of your CBS
Public
APIs connect systems in a secure and controlled way
Open APIs helps preventing risky practices like
« screen scraping » or sharing passwords with Partners
untrusted sources
It is likely that you already use APIs between your Internal
various components of your MIS systems
(bank-owned)
Real Open APIs: open to public!
Access to APIs can be monetized and this can
represent new revenue streams for banks (« API
Economy » based on QoS, “freemium models”, etc.)
Open Banking: Partnering with fintechs
Most fintechs are keen on co-operating with banks
They offer complementary services Banks Fintechs
They target specific pain point or question (vs broader
spectrum of services): best-in-market approach
They have the capacity to invest more in high-tech (AI, Expertise Innovation
big data, etc.) in a more focused manner (no legacy
systems…)
Funds Agility
Less regulated (and don’t want to be!)
Established Technology
While banks still perceive fintechs as challengers, win-win
cases are getting more frequent and trumpeted
Open Banking: Example
Account aggregation: Service like Yolt in UK or Mint in USA
Combine accounts from various institutions in one site /
mobile application
Most likely, in the future you won’t be using the mobile /
internet banking provided by your bank(s)!
Allows for aggregated digital financial footprint of
customers and better services (loans, overdraft, savings,
money transfers, etc.)
Can provide non-financial services such as AI-powered
financial advisor
Open Banking for SMEs: use cases
SMEs difficulties to borrow (~USD 2.4 trillions credit gap in East-Asia / Pacific)
On top of aggregation of accounts…
Specific cases for freelancers / MSMEs (eg, Coconut account in UK), easing tax payment
Accounting solution: better cash-flow forecast and offer of financial services (eg, loans)
Fintech-led: eg, Tide in UK: provided with other firms (PrePay Technologies and Barclays)
Bank-led: eg, HSBC in UK: integration with cloud-based accounting (Xero, Sage, Quickbooks) to
do bookkeeping but also manage payroll, issue electronic invoices, manage receivables, etc.
Banks to provide other VAS
eg, Kaspi Bank provide online marketplace for their SME customers to sell online
Banks to partner with alternative lenders
Eg, Kabbage and Santander UK: Kabbage assesses many data-points to score SMEs in an
automated and quick manner
Source: SME Finance Forum
Open Banking for SMEs: key enabler
Performances and creditworthiness of the SMEs are better assessed and
more suitable financial services offered
SMEs can focus on their business and growth
Open Banking is not an easy journey, many challenges are on the way:
Fraud and increased exposure to cyber-criminality (regional coordination)
Associated reputation risk (eg, data leak)
Loss of customers (to other banks and/or fintechs)
Loss of certain revenues (eg, PSD2 is expected to lower ~10% of payment fees)
Heavy investments in IT systems (middleware, security, sandbox, CBS, etc.)
Change of mentality within banks
Source: PwC - https://www.pwc.com/it/en/industries/banking/assets/docs/psd2-nutshell-n05.pdf
Next steps: beyond APIs
Only providing APIs isn’t sufficient!
A proactive management role from the bank will be required
Provide a good user experience to the developers!
Various levels of maturity:
1) Open APIs exist and are documented (and up-to-date vis-à-vis latest
products and services), sandbox environments are provided
2) APIs are granular and permits rich extraction of data (rather than
large, unbundled set of data)
3) Active management of developers using the eco-system (eg,
hackathon, challenges to solve, giving a sense of « community »)
Next steps: data governance
Data strategy and data focal point in the organization, in charge of:
Data integrity and consistency (mapping over various systems, avoiding
redundancy), data up-to-dateness
Establishing list of “missing” data and a strategy to obtain this data (eg,
digitization of certain processes or documents, purchasing data externally,
open data and other alternative data sources, etc.)
Defining policy regarding “Big Data” and what to do of some unstructured data
collected by the bank (eg, setup data lake for later use) – when useful only!
Ensuring data is accessible only to relevant departments of the bank (with a
Datawarehouse and Business Intelligence solutions)
Ensuring data can be consumed by systems to automate processes (eg, credit
scoring)
Next steps: Experiment!
Partner with fintechs around you
Get inspiration from existing solutions and adapt to your local market (no
need to reinvent the wheel…)
Adopt a « try & fail » approach for experiment (designing proof of concept
and piloting them in sandbox environments
Try to remove « silos » from your organization (innovation might require a
more « horizontal » culture)
Ease certain procedures to make pilots more agile
Organize events around solving certain problems (eg, hackathon to
speed-up customer onboarding)
Work hand in hand with your regulator to partake to “regulatory sandbox”
Conclusion
Open banking offers incredible opportunities and challenges
There’s no « one size fits all » type of attitude: it all depends on your market, customer
segments, competition, environment and eco-system, readiness, etc.
However, doing nothing isn’t an option!
Starting to open your systems in a controlled manner can be a first step
Data governance matters and should be aligned to business goals
Instill an innovative culture within your organization
Don’t wait! There’ll be losers and winners. Lagging behind is probably not the best option.
