What is open banking and what can it do?

Nowadays, if you are looking for a financial institution to apply for a loan, just thinking about it makes you tired, doesn’t it? This is because you have to spend time preparing many documents, submitting them to various financial institutions, and wait for the results for several days. However, there’s a word that makes this process easy. We call it open banking.

What is open banking?

Open banking is a way of allowing financial service providers and external companies (e.g. fintech, software developers) to access your financial account data with your consent. This data is exchanged via APIs, which are sets of instructions that enable banks and other companies’ systems to connect and communicate with each other. The goal is to use this financial data to improve services or develop products that better meet customer needs.

Many people may have heard other terms, such as open data or other open concepts. Therefore, I would like to illustrate how open banking is related to open data, as shown in the following image.

Relation of open banking and open data — _{Figure 1: Open banking is one of the subsets of open data}

Thailand has also become quite proactive on this matter. The Bank of Thailand opened for feedback on the policy direction of open data for consumer empowerment at the end of 2023.

The benefits of open banking for Thailand

If Thailand successfully implements open banking data, it will have a positive impact on many sectors and could potentially revolutionize the financial industry. Below is a summary of the key benefits.

1. Benefits for consumers and the public

First, the benefit would be easier access to credit, which is an issue that many people see as a direct benefit of open banking. This is because it allows for the convenient sharing of data with financial institutions, and they can also easily request information for decision-making.
You can easily and conveniently view comparative information on financial products from multiple institutions in one place.
You can manage your finances more conveniently because you can gather financial data from multiple sources in one place.

2. Benefits for banks and financial institutions

Since the Bank of Thailand will also implement open infra, it will allow banks and financial institutions to share a common financial infrastructure. This reduces the cost of developing services and enables the creation of new innovations.
There are increased opportunities to expand markets and reach new customer groups. Banks and financial institutions can use open banking data to analyze and better understand customer behavior and needs.

3. Benefits for fintechs and financial service providers

Creating opportunities for application development
You can develop applications and services that connect directly with banking systems, without the need to build infrastructure from scratch. This leads to the emergence of new financial innovations, such as savings apps, investment platforms, and automated financial advisory services.
Reducing service risk
Access to more accurate and comprehensive financial data will help fintechs and service providers better assess the risks in lending and providing financial services. This reduces operational risks.

4. Benefits for the overall economy

Increased competition in the financial sector
Opening financial data to multiple players in the market will intensify competition in both product development and the provision of services that meet customer needs. We expect that financial products and services will become more efficient and of higher quality.
Promote access to financial services for previously underserved populations, such as remote communities or low-income groups. Tailoring services to their financial situations could impact the overall economy.

How can open banking succeed in Thailand?

To make open banking successful in Thailand, we would like to divide the relevant parties into four sectors as follows:

Government and regulatory authorities (Bank of Thailand)
The main focus is on issuing regulations and supporting policies, such as setting API standards, personal data protection, and security measures. This will ensure that data exchange is secure and efficient. Additionally, it will involve educating consumers and the public about open banking.
Banks and financial institutions
Banks and financial institutions should develop and disclose standardized APIs to allow external developers to access and use customer data securely and efficiently with consent. They should also consider tracking potential fraudulent activities.
Fintech and software developers
Once the rules and requirements are clear, and banks and financial institutions have APIs ready for use, fintech and software developers should develop services and applications using open banking data to meet user needs. These might include financial management, loan applications, spending behavior analysis, and automated investment. They must also adhere strictly to regulations to prevent risks and ensure confidence for users.
Consumers or the general public
Consumers or the general public should understand the benefits and risks of open banking. They must also consent to share their data with trusted providers.

Challenges in implementing open banking

It would be difficult to confidently say that Thailand should quickly implement Open Banking successfully if the key challenges faced by other countries that have already succeeded are not yet addressed. Those challenges are as follows:

Data security
This is the first and probably the main concern for many people. This is because consumers must consent to share their financial data with fintechs and financial service providers. If those companies do not have appropriate data security, it could result in the loss of money or important personal information.
Benefits and costs for relevant parties
While most agree with the open banking approach, some believe it should also consider the incentives and costs for service providers.
Infrastructure
It includes common standards that must be studied and agreed upon by all relevant parties. This requires time and must be implemented carefully.
Users understanding
Encourage users to understand their rights to use their data. If they are not aware of their rights, even the best systems will not yield worthwhile results.
Cooperation of banks
This is one of the most important factors. Banks hold vast amounts of customer financial data and must open this data for business competitors to use conveniently.

Examples of successful open banking implementation

Let’s see an example of open banking implementation in South Korea. It is one of the countries that has been very successful in implementing open banking within the financial system. It can be said that South Korea has reached the highest level of using open data.

KakaoBank
KakaoBank is one of the digital banks that leverages open banking in South Korea. It can connect to various bank accounts through an API. This allows customers to access account information from multiple banks in one place.

Customers can also perform financial transactions conveniently through the KakaoBank app without the need to open new accounts at multiple banks. As a result, KakaoBank has grown rapidly, with over 240,000 customers signing up within the first 10 days of its launch. It now has more than 10 million users in just a few years.

Naver Pay
Naver Pay is a popular digital wallet provider in South Korea. It utilizes open banking to connect with several major bank accounts and credit cards for fast payments.

Users can easily check their transaction history through the app, making it convenient and user-friendly. This has contributed to the growth of South Korea’s digital economy. It helps promote a cashless society and increase convenience for both merchants and consumers.

iCONEXT has a business partner specializing in open data platform from South Korea. It is one of the countries that has been most successful in open data globally. If you are interested or want to prepare for open banking, please feel free to contact us at th aisales@iconext.co.th or click Inquiry Form

_Source:

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_{Image by Freepik}