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.