Open banking — Reshaping the Banking Industry

In a recent TransUnion survey, 99% of financial service firms expected to benefit from open banking — while 95% of consumers expected tangible benefits from open, consumer-consented data. How exactly can open banking move the industry forward, and what’s the key to consumer consent in sharing banking information?

At TransUnion’s 2020 Hong Kong Financial Services Summit, Brendan LeGrange, Director Research and Consulting, explained the foundation and potential of open banking. In his presentation — Designing Success for Open Banking — he highlighted benefits for both money lenders and customers, as well as what to consider when implementing the initiative.

Advantages of open banking for consumers and financial institutions

With open banking, consumers consent to providing potential service providers with their banking data. This leads to increased automation for new account openings, and access to a wider selection of innovative products customised to specific needs. To move this forward, the Hong Kong Monetary Authority (HKMA) introduced a four-phase framework for implementing open application programming interface (API) functions in the banking sector. The first two phases of open API function — product information and new customer acquisitions — have been completed. The remaining two phases, focused on account information and transaction details, will be implemented next.

Open banking has the potential to improve the customer experience and increase competitiveness for banks by:

1. Streamlining the customer journey
For consumers, opening a new account usually involves gathering necessary documents — such as payslips or electricity bills as proof of address — which can be a time-consuming hassle. However, by consenting to share their data through open banking, consumers enable financial institutions to collect necessary information on their own, reducing processing time from a few days to minutes.

2. Increasing automated onboarding
While the actual approval process for new customers may take just a few minutes, the task of collecting and delivering the necessary documents to the branch may take several days. With open banking, customer information can be quickly gathered, sorted and sent for approval within hours. In instances where all customer

3. Aiding risk decisions, such as affordability and creditworthiness assessments
During risk assessment, banks ask two questions: Can they pay? Will they pay?

With open banking, banks have an applicant’s transaction data on hand — allowing them to analyse income versus expenditures to evaluate ability to repay. In the case of an affordability assessment, winnings from gambling wouldn’t count as stable income, while expenses from renovations wouldn’t be counted as regular expenditure.

A creditworthiness assessment can also be conducted using transactional data. For example, transactions related to travel wouldn’t necessarily be deemed as high-risk as regular cash advances.

Taking appropriate measures to protect consumers

Opening banking is a consumer-driven initiative, so consent is critical. That’s why it’s important financial institutions are clear on what data will be accessed, what it will be used for and who will see it. At the same time, there must be an obvious benefit for customers in exchange for their consent, such as access to more favourable products or rates, quicker application processing and onboarding, etc. We can use the United Kingdom as a prime example of how to roll out open banking — where 98% of UK consumers allow one-off access to their bank statement data. This is because consumers are more willing to consent for certain objectives (such as opening an account) at a particular point in time.

For more details on the open banking initiative and successful examples, you may watch the full on-demand session recording and download the presentation materials. Contact your sales representatives or click here for password.

While many UK early adopters of open banking have begun to reap the rewards, Hong Kong consumers are willing to give open banking a chance. To learn how TransUnion solutions can support your open banking initiatives, click here.