Hong Kong Takes Different Path To Open Banking

November is a month filled with FinTech thrills in Asia. Hong Kong and Singapore hosted their signature FinTech events Hong Kong Fintech Week and Singapore FinTech Festival, on the first week of the month. Yet, amid all the excitement (some may call hype) in virtual assets, crypto-currency, and Web3, other more pragmatic initiatives like open banking are taking shape in the markets. 

The essence of open banking is to securely share APIs and data from banks with third-party developers to provide better digital services around financial institutions. Open banking is a trend that has been gain traction and offering opportunities for banks and enterprises to transform their data strategies. 

Open banking market beckons

According to Future Market Insights (FMI), the global open banking market is expected to reach USD19.6 billion by the end of 2022. South Asia and the Pacific region are expected to register the strongest growth with a CAGR of 22% between 2022-2032, while China is expected to have a CAGR of 19% in the same period.

“Open Banking offers features such as quicker access to credit and financing procedures; this factor is driving the market growth,” stated the report. “Many companies are utilizing open banking systems to develop their models and grow the amount of credit they provide to customers almost instantly.”

But different markets are enabling open banking with very different approaches. For example, in Singapore, the Monetary Authority of Singapore (MAS) operates the Financial Industry API Register, which tracks open APIs in the country’s financial industry by functional categories. In Australia, the initiative is more regulator-led with the launch of the Consumer Data Right (CDR). It legalized and made mandatory open banking across financial institutions. 

CDI solves commercial loans challenges

Hong Kong has a very different approach. Instead of encouraging banks to open their APIs for data sharing, there are different initiatives surrounding sharing customers' data to facilitate similar digital services.

The official initiative is Commercial Data Interchange (CDI), operated by Hong Kong Monetary Authority(HKMA). Launched officially last month, CDI is a centralized platform that encourages enterprises as data providers to share information about their customers. Banks, as data consumers, can only access the data upon the customers’ consent to digitalize banking services and processes, like credit assessment, loan approval, or KYC.

Under CDI, the most popular service is commercial loans. Ping An OneConnect Bank (PAOB), one of the city’s first virtual banks, is offering loans to SMEs without financial statements or collaterals, said Michael Fei, chief executive designate at a panel during FinTech Week. Instead, the bank is riding on the trade volume, and customs control documents from TradeLink for credit assessment. He added that the bank had approved 500 applicants, with 30% first-time bank loan borrowers. 

During FinTech Week, HSBC's head of business banking at commercial banking in Hong Kong, Christina Ong, said the bank can now access credit records in seconds, instead of hours or days, through the linkage of Commercial Credit Reference Agency (CCRA) with CDI. She added the bank is also partnering with the city’s first contactless stored value smart card, Octopus, and e-commerce platform, HKTVMall, to access corporates’ transactional data upon their consent to make credit decisions.

“CDI is solving the top challenge for many SMEs and startups in accessing commercial loans,” said Jacob Wai, partner, consulting (analytics & cognitive), Deloitte. “A credit report used to ask for five years of financial data — many startups have neither the history nor the data.”

Beyond commercial loans

Deloitte’s Wai added the potential of CDI extends beyond commercial loans. For example, payment terms between companies are also considered credit. In addition, CDI offers a platform for banks to provide a stamp of approval. 

Fei from PAOB noted CDI also could expand toward the Greater Bay Area. Since many Hong Kong businesses are exporting from China, linking CDI with trading data from China can create many more digital service opportunities. 

To extend the digital banking services from CDI, Wai said it requires more incentives for enterprises to take part as data providers. Currently, there are six data providers, with property developer New World Development, HKT Payment, operator of Tap & Go, and QF Pay as the only private sector participating in CDI.

“The commercial value for data providers remains limited,” he said. “HKTVMall took part in the POC but did not officially become a data provider. This is an indicator there is a lack of commercial benefits for data providers.”

“Going forward, the HKMA will continue to broaden the spectrum of data available via CDI, including data from government departments and analytics service providers, with a view to exploring new business use cases leveraging CDI,” added HKMA’s official statement. 

Opening APIs and data beyond CDI

Nevertheless, banks in Hong Kong are not only relying on CDI to explore digital banking services. Many local banks have developed their API initiatives, working with individual partners to offer specific digital banking services.

One of the examples is the partnership between China Construction Bank (CCB) with FWD Insurance. The two extended their 15 years of collaboration via CCB’s open API initiative. Annie Chen, chief retail banking officer at CCB Asia, remarked that through integrating the bank’s system with FWD’s premium payment acknowledgment process, the insurance policy approval is shortened from seven days to less than 24 hours. This service to speed up the onboarding process is expected to launch early next year.

Meanwhile, third-party providers like RD Technologies, founded by former HKMA CEO Norman Chan, offer data-sharing KYC solutions. The company’s RD ezLink collects and verifies corporate identity key data against independent and reliable sources, facilitating businesses to meet their banks' KYC and customer due diligence (CDD) requirements.

Partnering with five banks — Ant Bank, Bank of East Asia (BEA), CMB Wing Lung Bank, Standard Chartered, and ZA Bank — RD Technology aims to allow corporates to share their digital profile between these banks to replace multiple forms filling and to speed up the KYC process in account opening and other ongoing maintenance.

Hong Kong may not have defined open banking policies. But different data and APIs sharing initiatives are encouraging enterprises to review their data strategies to tap into this FinTech excitement.

Sheila Lam is the contributing editor of CDOTrends. Covering IT for 20 years as a journalist, she has witnessed the emergence, hype, and maturity of different technologies but is always excited about what's next. You can reach her at [email protected].

Image credit: iStockphoto/Rudzhan Nagiev