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Open Banking In The Global South

Open Banking is under continuous discussion and implementation  in OECD and European markets.  This post provides a brief operator view from the Global South, a region of massive opportunity and diverse needs. 

I took the liberty of looking at the definition of Open Banking. First, with due acknowledgement to OBIE, UK-"Open Banking is a secure way for customers to take control of their financial data and share it with organisations other than their banks....."(https://www.openbanking.org.uk/wp-content/uploads/OB_MediaPDF_FINAL.pdf). This is important. In our markets, the approach to API led integration with the banking industry is both present as well as evolving. However, we are far from having structured Open Banking frameworks, products and services. There are pay-by-bank services run by individual banks as well as bank networks; real-time-payment services, mostly operated as utilities by  central bank approved institutions; direct debit services of various flavours, starting from GIRO. But we do not see, yet, a situation of a common framework allowing consumers to tick on an "Open Banking" option and being able to permit access to their data to third parties. One must also ask to whether consumers will have a say in which data might be shared and if they could be incentivized for use. 

The most widely known example of third parties integrating with banks is of real-time-payment rails. The use case is most common in countries such as Philippines, Brazil and India. The applications which provide real-time payment services are very likely the future early adaptors of Open Banking in these markets. They are already integrated with the banking ecosystem, are tried and tested and have large user bases. As a result, the end-consumer would be able to transact with multiple entities from within a single app. Whether that experience is going to be seamless, based purely on a tokenized authentication flow, is something that we have to wait for. There is, of course, a larger issue which may need to be tackled ahead of any comprehensive Open Banking roll-out. That is the issue of third-party application sustainability.Today, many of the largest applications are able to reap the benefits of real-time payments from a traffic perspective. It is not clear, however, whether there is a pricing regime in place (or will be there in the near future) for them to monetize this traffic adequately. Merchants do not expect to be charged fees(in entirety or significantly) for accepting real-time payments. But without sufficient fees, the third parties providing merchant services and consumer applications will find operations to be untenable. On the other hand, if they do not provide the service, they will lose their volumes, making them less important. The matter of fraud and chargebacks will come our way soon. 

Having implemented one of the largest Pay By Bank platforms in Asia, I can make a few observations. One, Open Banking could be real-time(or "faster") but real-time is not equal to Open Banking. This could change. Two-unlike the EU, each country has it's own laws regarding data and data sovereignty. This makes things more complicated and puts product scaleability under question. Three, pay-by-bank with full features, consumer protection, cross-bank access and merchant acceptance is some way off. It has started moving.

Now, there is an emphasis on speed in the current business narrative about payments. Yet, it is important to keep in mind that business profits, consumer protection and funds risk management are three key building blocks of any successful service. Open Banking is fairly radical conceptually in bringing third party integration with banking through a common API framework. That framework and the rules governing all players have to tick the box on the above three requirements, at a minimum. I would like to make one more point which is often overlooked. Consumer and merchant interaction with apps remains an area of continous improvement. It is also where a service will rise or fall. 

In future posts, I will write about the consumer perspective on Open Banking. When it comes to dealing with consumer data and it's ownership in the future, we are in mostly uncharted territory. This requires anticipation and planning. 

 

 

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Comments: (6)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 20 March, 2024, 11:40Be the first to give this comment the thumbs up 0 likes

Unsolicited $0.02 for your follow up posts (or even for editing the present one): Don't baseline Open Banking on EU. It's only a law there. By way of market adoption, markets like USA have trounced EU by a factor of 10.

Open Banking: EU v. USA.

The way ~6000 open finance apps work in USA, customers clearly decide what data they want shared across the open finance ecosystem and NOT by clicking a button labeled OPEN BANKING.

Kaustuv Ghosh
Kaustuv Ghosh - Nxtgen Payment Infra. Prometheus Labs. - Singapore 25 March, 2024, 02:32Be the first to give this comment the thumbs up 0 likes

Hi Ketharaman, you are right-however, I am following the most structured markets which policymakers elsewhere may take up as benchmarks. The button "Open Banking" is just to be treated metaphorically. Customers should be able to engage with FIs and third parties to see multiple banks on one app, choose what data they are ok to share and are able to work with those through a single interface in common agreement. I am also keen to know more about FDX. Lot of learnings going on and lot of blind spots to be rectified. Thanks for your inputs, greatly appreciated. 

Kaustuv Ghosh
Kaustuv Ghosh - Nxtgen Payment Infra. Prometheus Labs. - Singapore 25 March, 2024, 02:40Be the first to give this comment the thumbs up 0 likes

Furthermore, I would like to enquire more. If EU has not progressed further despite PSD2 and PSD3, why is that so? If there are 6000 apps Open Banking apps in the US, then that means it is a runaway success. But beyond Plaid, what does that actually mean? Is this consumer-led banking? If not, it is not open banking in the way we think it should be. But perhaps they have defined it for their own purposes. So is it new wine in new bottles or old wine in new bottles? On the other hand, in our markets, data ownership and customer engagement will be a more complex, negotiated process with an eye on differentiation and portfolio growth from new segments. The definition of Open Banking will change.  

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 25 March, 2024, 08:07Be the first to give this comment the thumbs up 0 likes

My linked post explains how USA has achieved runaway success in "Open Banking".

tl;dr: It's not by clicking a button labeled OPEN BANKING - literally or metaphorically. If anything, it's by doing exactly the opposite. 

Kaustuv Ghosh
Kaustuv Ghosh - Nxtgen Payment Infra. Prometheus Labs. - Singapore 25 March, 2024, 23:32Be the first to give this comment the thumbs up 0 likes

Thanks. I am not able to see your linked post, perhaps it might help to re-share privately and have a separate conversation about your own experiences on Open Banking and how you see it evolve. Thank you. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 March, 2024, 11:12Be the first to give this comment the thumbs up 0 likes

I'm able to click the link and visit the post, not sure what's the problem you're facing, anyway giving below its URL, push comes to shove, you can always copy-paste:

https://www.finextra.com/blogposting/22155/open-banking-eu-v-usa

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