DEMYSTIFY TECHNOLOGY : Is Open Banking Set to Revolutionise Financial Services?

28 July 2021

The COVID-19 pandemic redefined how the financial services industry operates. It also created great momentum for innovations within the industry as consumers increasingly reached out for digital financial solutions. This growth has caused banks around the world to seriously look into Open Banking, a concept that was introduced just a few years ago. 

What is Open Banking?

Open banking is undoubtedly a huge leap towards digital transformation for banks globally. To define it, open banking is simply the practice of enabling Third Party Providers (TPPs) to have access to banks’ data through open Application Programming Interfaces (APIs). These TPPs range from e-wallets, microloans, FinTechs and many more.

Application Programming Interfaces (APIs)

  • Broadly categorised into private, partner, and open APIs
  • Open API is an application interface that allows access to third-party developers without the need to establish a business relationship with the API publisher

Third-Party Providers (TPPs):

  • An authorised online financial service provider
  • There are two (2) types of TPPs:
    • Account Information Service Provider (AISP)
      Authorised access to account data provided by financial institutions and banks
    • Payment Initiation Service Provider (PISP)
      Authorised access to initiate payments in and out of a user’s account

How is Open Banking beneficial?

The Open Banking revolution is bringing many new opportunities for innovators to create services and for customers to enjoy these services. The benefits of Open Banking is not just limited to consumers, but it extends to service providers as well.

Benefits to Consumers

i. Hyper-personalisation
Open Banking allows banks to collaborate with FinTechs and businesses from various industries. Data-sharing agreements with FinTechs and other non-financial companies open up the potential to develop new, innovative services as they utilise the vast data available. A more expansive source of data could potentially change the face of more traditional industries such as travel, retailers and insurance.

ii. Enhance the customer-centric approach
Banks gain access to user’s data from other participating financial institutions through Open Banking. This capability gives banks the means to leverage that data and create their integration-based financial offerings. As banks increase their database of customers and curate products accordingly, they are able to strengthen their “customer-centric” approach to business.

Where is Malaysia today in the Open Banking space?

In June 2016, Malaysia’s central bank and principal financial services regulator, Bank Negara Malaysia (BNM), established a Financial Technology Enabler Group (FTEG) to support innovations within the Banking, Financial Services and Insurance (BFSI) sector. The FTEG plays the role of developing new policies and enhancing existing ones related to the adoption of new technologies in the sector.

Consequently, in 2017, FTEG launched a FinTech Regulatory Sandbox framework to test new and applicable technology, including Open Banking.

In March 2018, BNM made their biggest stride yet by establishing an Open API Implementation Group. This was to develop standards and regulations around open data, security, oversight arrangements for TPP, and rights of access. The group was also accountable to review the existing regulations regarding controls on customer information.

As of 2021, BNM is taking a phased approach towards Open Banking; they are cognisant of the security threats and governance measures that would need to come along with it. The central bank is also welcoming additional proposals from the BFSI, FinTech community and any interested parties that would benefit from standardised open APIs.

What does the future hold for Malaysia and Open Banking?

The Nordics in Europe and the UK are at the forefront of building a world-class Open Banking digital ecosystem. These countries have their framework and API standards in place to facilitate the process. They also have a vast digital infrastructure that enables the widespread use of Open Banking.

The global acceleration of Open Banking will be a catalyst towards Open Banking in Malaysia. Malaysia will be able to learn from the best practices of countries around the world and avoid the mistakes that they may have made while adopting Open Banking. With the right governance, regulations and security checks in place, Malaysia will soon follow suit with these leading countries in implementing Open Banking.

Open Banking will also gain traction in the country, thanks to its rapidly advancing FinTech ecosystem. The FinTech community in Malaysia is hungry for innovation and is also open to collaborating with banks to create new products and services. Moreover, Malaysia is home to the most digital natives in Southeast Asia, with 83% in digital consumers. These modern consumers are imperative in ensuring Open Banking is a success.

The increasing prominence of fintech companies alongside the high digital readiness of consumers proves one valid point - Malaysia has an emerging market with a vibrant digital ecosystem; one that is ripe to accept Open Banking. This digital transformation might just be the right enabler that unlocks opportunities in the banking space, ultimately revolutionising banking itself.


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