Creating a more financially inclusive Asean through open banking

Amid digital disruption, the government has also signalled that financial institutions should not be too quick to get rid of their people, even as technology allows banking processes to be automated.
MARCH 27, 2019 - 5:12 PM

by Damien Wong

Open banking has increasingly been described as a key enabler of innovation for banks and financial technology (fintech) players. According to IDC Financial Insights’ research, financial services institutions have become increasingly open to collaboration with fintech companies, or investing in them to build innovation competencies. Besides innovation, other key benefits open banking can bring include greater convenience for customers, as well as services that can be better tailored to their lifestyles.

What is open banking

Before exploring the impact of open banking on the Asean population, it is important to understand what it is and how it works. Essentially, open banking uses APIs to provide third-party vendors – such as retailers, food & beverage operators, and fintech entities – with access to data and services from financial institutions.

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For consumers, this means the ability to access and make use of services such as e-payments and expenses tracking without having to go through traditional banking touchpoints. A retailer that integrates a bank’s payment API into its mobile app, for example, will be able to accept payments made directly on its app, instead of requiring consumers to transfer the amount through the bank’s website. In the Asean region, where access to traditional banking services may sometimes be difficult outside of urban areas, this innovation can help communities currently underserved by banks.

Achieving financial inclusion in Asean

The Southeast Asia region is home to 630 million people, of which 60 percent of them are under the age of 35 . At the same time, the region also has a mobile user penetration rate of over 140 percent . This digital population can make a promising customer base for fintech companies specializing in services such as e-wallets, mobile money transfer and peer-to-peer (p2p) financing options.

Besides creating business opportunity, developments in open banking technology also have the potential to impact the lives of consumers in very meaningful ways – such as fostering greater  financial inclusion. Fintech companies today could hold a key to  improving the lives of the 1 billion unbanked population in Asia .

Open banking has the potential to create opportunities for the unbanked and underbanked in a number of ways, including:

Access to insurance services

By facilitating access to banking data, open banking can serve as a catalyst for new financial products and services. This has the potential to allow fintech companies to reach new customers in traditionally underserved markets. In Indonesia, Bank Andara and Fundamo launched a mobile-enabled microfinance services network , built on open APIs, which enabled microfinance institutions to be able to reach out to 40 million previously financially excluded Indonesians. Services such as microinsurance could also be enabled in a similar manner.

The potential impact of this to low-income communities could be highly beneficial. A joint report by the World Health Organization (WHO) and the Organisation for Economic Co-operation and Development (OECD) found that household out-of-pocket expenditure accounted for almost half of total health expenditure in lower-middle and low income Asia-Pacific countries in 2015, an increase of just one percentage point from 2010. This suggests that significant gaps in providing health coverage in the region could remain. By helping to provide coverage at a lower cost, microinsurance services could allow low-income users to mitigate health risks with less financial burden.

Obtaining lines of credit

Access to credit lines can allow individuals to participate in commerce activities such as opportunities to start and run businesses. Besides being able to help generate income, this can also help create jobs, and can spark a cycle of greater financial generation for the community.

Improving access to education

On an individual level, the ability to facilitate licensed lending has the potential to allow low-income families to make loans to invest in education for their children, which can be a factor to helping them break out of the poverty cycle.

The International Monetary Fund currently estimates that if all Asian countries with poor access to financial goods and services improved to the same level as Thailand, poverty in the region could fall by four per cent – or around 20 million people. Some fintech companies helping the region advance towards such a goal include Ascend Money, which runs an e-payments platform called TrueMoney. With TrueMoney, over 30 million customers - both digital consumers and the unbanked - across six countries in Asean are now able to more easily transfer money, pay their bills, and top up their prepaid mobile cards using their phones. At the same time, its Ascend Nano service helps underserved small and medium enterprises (SMEs) by providing financial and credit services that can help to compete more effectively in their own markets.

Building an open financial ecosystem in Asean

Creating an open financial ecosystem that fosters financial inclusion can require both technological developments and strategy-level change. It is important that banks and Financial Services Institutions (FSIs) go beyond just enabling access to internal systems through APIs by third parties.

To enable agile teams to respond to market needs more quickly, FSIs can deploy an open platform designed to remove friction and embrace a microservices architecture. They can also take advantage of technologies such as hybrid cloud to help address issues of scale, security, and stability.

Asean offers an opportunity for open banking. As the region ramps up its efforts to leverage digital technology to be able to exploit its potential, it should be a collective responsibility of FSIs and regulators alike to see that financial inclusion remains not a by-product of its development, but a key goal in all its endeavors.



The writer is Vice President and General Manager for Asian Growth Emerging Markets (GEM’s), Red Hat.