Thursday 28 Mar 2024
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This article first appeared in Digital Edge, The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022

Open banking has the ability to change the way consumers engage with their banks and financial services providers. This is why Bank Negara Malaysia released a policy document in 2019 on publishing open data using open application programming interfaces (APIs) and encouraged regulators and financial industries to consider a move towards open banking.

Open banking is the process of enabling third-party financial service providers to access consumer banking information through APIs. It can provide innovative new services to satisfy consumers’ financial needs.

An example of open banking would be when a user is able to access all of his or her financial information in one place. This would include all financial services such as banks and real estate or mortgage companies that access customer information on loans, checking accounts, credit cards and expenses.

“That’s a simple use case. It is convenient for a person to manage their total wealth in one place. It’s the same for businesses because it is hard for them to know where all their money is. This shows a nice picture,” says Farhan Ahmad, group CEO of Payment Networks Sdn Bhd (PayNet).

Farhan took over the role from Peter Schiesser in April. PayNet is the operator of the national payments network and shared central infrastructure. Its services include DuitNow QR, the nation’s interoperable QR standard and MyDebit ATM services.

A complex use case would be when open banking can be used with the same connectivity for seamless sharing of data to make instant, real-time decisions.

For instance, through open banking, a bank is able to assess a user’s loan application by checking his or her bank balances across different accounts. If the user has about RM100,000, the bank would have instant information and would be able to make instant decisions based on real data instead of depending solely on paperwork.

Instead of going to different places, users are able to get all their data in one place. It is empowering for consumers to have that information at their fingertips at all times, says Farhan.

In the Financial Sector Blueprint 2022-2026, Bank Negara stated that common standards for data sharing in the financial sector will be facilitated.

“We will support efforts to establish shared data infrastructure for the financial sector and its broader value chain. This would include emerging digital platforms that enable more seamless and efficient connections among various users. As with other key digital infrastructures, our priority will be to promote the adoption of open and interoperable design principles,” the blueprint says.

“It’s not just about data. It is creating use cases, enabling them, empowering them, making them easy to use and promoting them in the marketplace. It really depends on whether we are aligned around buzzwords or outcomes,” says Farhan.

“I would like to position everything that we do to be relevant in terms of outcomes. We must decide use cases and we must only declare ‘mission accomplished’ when we see those use cases becoming prevalent and thriving.”

All in one place

There are a few components that are needed to enable open banking. First, real-time data connectivity with all the participants has to be enabled. A consent framework for consumers will then have to be built. This is for consumers to give consent for their data and information to be pulled and used.

“It’s your data as a consumer. We cannot access your information without your permission. The permission is very important and an explanation has to be given to the consumer,” says Farhan.

A good online banking infrastructure is crucial to enabling open data. To pull information from a bank, a user will go to a secure site and access it with their identity document (ID) and password that is not shared with anybody else. This is tokenised and saved. This process is repeated for every bank or company a user interacts with.

When a user wants to apply for a loan, the tokenised logins are then used to pull and share data when necessary, which is then provided to the end person.

“This is much safer than people having to type their user ID and password on multiple sites. It is much better to do it at one time with a safe entity, where the information is immediately tokenised,” says Farhan.

Tokenisation is critical to the security element of open banking. Currently, every time a user logs in with his or her user ID and password, the user is at risk of the network being intercepted. Tokenisation removes this risk as it only has to be done once.

The teething problems in the adoption of open banking in Malaysia would be centred around mindset, talent and the building of sustainable infrastructure, says Farhan.

“I think mindset is the hardest one to overcome. The pace of innovation is rapidly increasing and requires embracing challenges and risk. Welcoming change rather than pushing against it and developing markets in general is the hardest hurdle for them [financial institutions] to overcome,” he adds.

“There’s a strong mindset of risk aversion. Don’t take chances. Don’t take unnecessary risks. Innovation is the exact opposite of that, so we have to change that mindset.”

The challenge for developing countries in an increasingly global world is that talents move. Developed countries look more attractive, so those who have the means leave for greener pastures, leading to a brain drain. Developing countries have to turn their focus towards building, training and retaining local talent.

“I would like PayNet to take a bigger role on that entire journey. If the companies that are here do not do it, I don’t know who else will. Of course, the government has a role, but as companies that benefit from the economy and rely on talent to build our future, it is very much incumbent on us to do our part,” says Farhan.

Building a sustainable infrastructure takes hard work and time. Farhan says there is a focus on achieving visible accomplishments from the get-go. He provides the analogy of building a tower. The only way to build a tower is to have the vision and clarity to say that the foundation will need to be laid first before the work can be seen.

“It is sometimes hard for developing countries, where they have to prove to everybody that they are keeping up and that they are doing work that is visible. To build a sustainable long-term future, the luxury of being able to focus on big meaningful things that may not be obvious in the short term has to be created,” says Farhan.

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