The global banking industry is undergoing a wave of disruption and there has never been a better time for fintechs and developers to hitch a ride on the wave. Introduction of the Hong Kong Monetary Authority’s Open API Framework for the banking sector is throwing up an unprecedented amount of opportunity. A combination of technology advancement, economic uncertainty and industry regulation is also leading to improved support and prospects for developers entering the sector.
In Asia, fintech has become especially important and is viewed as an integral catalyst for leadership as a financial hub in a ultra-competitive region. In particular, China, Singapore and Hong Kong have established national fintech initiatives and unveiled a number of projects aimed at encouraging public and private sector investment and promoting more academic involvement. And these efforts are being starting to be replicated across other parts of Asia.
Open Banking is designed to increase competition in banking and lower the barriers to entry. As the banking sector comes around to the idea of opening up its APIs for third parties to access, the HKMA has also shown great support and a strong drive to help the development and adoption of financial technology. Its recent industry consultation around Open APIs and resulting framework, announced in July this year, shows that it most certainly views open APIs and open platforms as the way forward for Hong Kong’s banking sector.
It is encouraging to see the level of support coming from banks, technology/fintech firms, industry associations and consulting organizations during this process. Hong Kong’s banking sector should fully adopt this strategy to ensure it can unlock potential and competitiveness in the region.
Although this approach opens up the banking market to a host of new competitors, it also paves the way for increased collaboration with all types of organizations – from industry giants such as Tencent and Alibaba to niche solution providers offering complementary services.
At the same time, banks are faced with a host of other IT challenges as the sector continues to innovate in areas of:
1. Real-time transactions and processing
2. The digital transformation of front- and back-end systems
3. Opening up systems to collaborate with a wider ecosystem
4. Embracing the potential of blockchain, which is considered a game-changing technology
5. Moving to the cloud to reduce costs, increase security, provide hardware support and maintenance that can scale
6. Utilizing artificial intelligence to improve customer service
By mandating banks to make their customers’ data accessible to third parties and encouraging the use of Open APIs, Open Banking is designed to encourage innovation and champion collaboration – allowing developers access to banks’ precious customer data and the core systems upon which so many successful fintech apps are built.
Collaboration between third-party fintechs and traditional banks will foster innovation, and Open API standards should accelerate Hong Kong’s progress.
Some questions remain unaddressed around how Hong Kong’s financial services sector can collaborate in an effective and efficient manner. What will be the standard bearer for Open Banking practices? How will the industry regulate upcoming initiatives based upon the Open API framework?
What we can agree on is that a platform strategy will be at the forefront. By connecting consumers with producers in a way that benefits all, quickly and with minimal friction, open platforms will foster the collaboration that is needed to move Hong Kong’s financial sector forward.
The financial services sector has been slow to adopt this model. Closed, legacy systems and requirements around availability and security have been major obstacles to innovation. For the fintech community, working with banks has been difficult because the integration processes are so tough, messy and long. But this is changing. People today expect modern apps and services and they’re not seeing them fast enough from their banks, lenders and investors.
Formerly a term ubiquitous with software offerings, a ‘Platform-as-as-Service’ approach that is designed to give banks and the fintech community the optimum environment to collaborate and build new applications is increasingly being embraced. As well as providing connectivity to a standard set of pre-built and fully integrated Open APIs, a platform-based approach can also dramatically optimize the software developer environment. For example, giving developers the ability to interact with Open APIs in a sandbox environment will allow them to experiment online in bringing data into their applications and to test the inputs and outputs in a safe environment before they’re deployed to market.
The benefit of the cloud and a platform-based approach is that it allows banks to decouple their APIs from their often-incompatible legacy systems and to create the API testing environment necessary for quality control and ease of collaboration with partners and customers. As a result, new apps can be fully tested and delivered to market much faster – helping banks deliver on the potential of open banking for their customers.
Never before have traditional banks, financial firms and the fintech community had such a great opportunity to collaborate and co-develop their ideas and innovations. It’s now up to industry players to make the most of this open environment and embrace platforms to take Hong Kong’s financial services sector to the next level.