Banking: Malaysia is ripe for open banking

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 9, 2020 - March 15, 2020.

Photo by Kenny Yap/The Edge

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Open banking, an initiative that allows third-party service providers to access individual banking data through open application programming interfaces (APIs), is expected to gain more traction in Malaysia this year, says Fendi Effendy.

The founder and CEO of Strings Global Sdn Bhd, a start-up that aims to provide open banking products and services to local banks, says more banks in the EU have adopted such an initiative. They are fostering partnerships with third-party service providers, such as financial technology (fintech) start-ups, to roll out financial mobile applications to consumers.

“These start-ups utilise individual data from various banks, with the consent of bank account holders, to create new applications and services for consumers that give them a better user experience,” says Fendi.

These applications include personal financial management solutions that allow consumers to consolidate their banking accounts with multiple banks to have a more comprehensive view of their saving and spending patterns, says Fendi. Consumers are also provided with more personalised financial and investment advice by the fintech start-ups that hold their information, just like a robo-advisor solution.

Open banking initiatives will invigorate the financial industry, which has not been innovating as quickly as it should have for the past few decades. “It is a global movement today. Bank Negara Malaysia has been vocal on the open banking initiative in recent years,” he says.

In January last year, the central bank published a policy document titled Publishing Open Data using Open API, which recommended the standards of open APIs that banks should adopt. It also elaborated on the security standards of these APIs and the governance processes of third-party service providers to ensure that banking data is shared safely and responsibly. 

In its response to common feedback and queries from the public last year, Bank Negara stated that banks are encouraged to share certain banking information with third-party service providers through open APIs, but are not obliged to do so. “We want to engage with Bank Negara to talk more about open banking,” says Fendi.

The open banking initiative will gain traction in the country. That is why he founded Strings nine months ago and made the company a partner of TESOBE, a Berlin-based software company that provides API products and services to banks in the EU. The latter’s notable clients are BNP Paribas SA, a French international banking group, and Santander UK plc, a British bank wholly-owned by the Spain-based Santander Group. TESOBE is the company behind the Open Bank Project, an open-source API solution. 

“As a partner, Strings can extend TESOBE’s products and services to banks in Malaysia. We have a set of APIs, more than 280 of them, that are readily available to banks. These APIs, developed by TESOBE, conform to the open banking standard of the EU that is laid out in its second Payment Services Directive (PSD2),” says Fendi. 

PSD2 is an EU directive, administered by the European Commission to regulate payment services and payment service providers throughout the region. 

Fendi says Strings, located at The Intermark in Kuala Lumpur, has hired 10 software engineers who are qualified to help local banks implement open banking solutions. “We do not just sell but also support and help local banks implement open banking projects.” 

A digital bank without a digital banking licence? 

However, the start-up’s longer-term goal is to become a digital bank by utilising the open APIs that it is looking to distribute in Malaysia. ‘We are talking to a traditional bank to explore such a possibility,” says Fendi.

Does this mean Strings will partner a bank to apply for a digital banking licence in the second half of this year, as announced by Bank Negara? No, he says.

Fendi points out that there is another way for the start-up to be a digital bank, which is to partner a traditional bank and ride its traditional banking licence, instead of applying for the newly introduced digital banking licence. 

“The traditional banks already have a banking licence with higher requirements to meet, compared with those of a digital banking licence. We want to partner one of them and extend its services to consumers through our platform by utilising APIs,” he says.

“So, we build our platform and applications and engage with consumers on the front-end. But when consumers open, say, a banking account with us, they open it with our banking partner on the back-end. Their transactions also go through the bank. When they apply for a debit or credit card, it is issued by the bank, not us. We are just a brand and the digital front-end.”

If it is successful, Strings will explore further partnerships with other banks to offer consumers more innovative products and services through its digital platform. “We will be targetting the unbanked and underserved market and bring new business to banks that partner us. It will be a profit-sharing model and we will not be competing for their existing customers,” says Fendi. 

It remains unclear whether such a plan can be implemented in Malaysia, but he says he will be meeting with the central bank for further discussions. 



Returning to the IT industry

Fendi Effendi worked in the IT industry for more than a decade before he founded Strings Global Sdn Bhd in February last year. 

Fendi started his career in 1997 as a product manager at Mesiniaga Bhd, a public-listed company and an IT products distributor that started its business by becoming the sole dealer of International Business Machines (IBM) Corp in Malaysia. 

Then, Fendi joined Entellium, a computer software company, in 1999 before becoming a technical consultant at Hitachi Data Systems in 2003 and a software engineer at Hewlett-Packard in 2005. 

In 2007, Fendi became a technical director at Precision Portal Sdn Bhd, which bagged two projects from the government through direct negotiation. The first was known as eKadaster, an online project that aimed to improve the time frame of the delivery system for the land title survey. “The project, worth about RM300 million, was developed for the Department of Survey and Mapping Malaysia,” he says. 

The second was the e-tanah project that aimed to improve and expedite the processing of land administration services. Fendi says the initial project was worth RM1 billion, but the company only completed the pilot project, which was worth about RM150 million. “That was when I left the company and went on a sabbatical for 10 years,” he adds. 

However, Fendi kept abreast of news in the IT industry and was convinced of the potential of open banking. He secured a few investors and founded Strings. “I come from an IT background. That is how I managed to talk to TESOBE and become one of its partners. We speak the same language,” he says.

The company will welcome a chief financial officer and chief technology officer in the next few months. It is looking to offer its products and services to banks in Southeast Asia.