The opportunity for open banking is far greater in emerging markets than in developed ones because that’s where the need is greatest.
“Profitable financial institutions choose not to serve groups that are considered ‘harder’ than corporate borrowers,” said Todd Schweizter, Singapore-based CEO and founder of Brankas.
The fintech startup is at the forefront of using application programming interfaces (APIs) for banks, merchants and fintechs to share consumer data, with consent.
“Open banking is changing the way that financial services are delivered in Southeast Asia,” Schweitzer said. Poor and remote communities across the region mean huge numbers of people without a banking account, or without access to financial services.
He says such high-cost segments account for as much as 50 percent of the population of the Philippines, and 40 percent of Indonesians. Similarly, only 25 percent of small- and medium-sized enterprises in these markets have access to credit.
“Brankas is arguably the market leader in the space,” said Ron Savino, managing partner of venture investor AFG partners, and a backer of the company. “Todd is a leading industry voice for open finance in Southeast Asia.”
AFG took part in Brankas’s January 2022 Series B round, which raised $20 million and was led by Insignia Venture Partners, along with Visa, Beenext, Integra Partners and Treasury International.
Beyond developed markets
Platforms run by open-API players such as Brankas are middleware, promoting the communication of customer data among everyone else, so that open-banking business models can thrive. Brankas offers an API package for given functions, such as customer onboarding, identity verification, credit scoring, and remittances.
Schweitzer says open APIs can produce far greater outcomes in emerging markets than in the West.
Open banking was formally pioneered in Britain and Europe about 10 years ago, when regulators mandated banks share consumer data, with consumer consent and to accredited recipients.
This has led to stagnation rather than upheaval, Schweitzer says. “In Europe open banking is a compliance exercise, not a business case that came from within the banks.” The result is lackluster support for maintaining third-party APIs and a refusal to accept that third parties might “own the customer”; customers must download the bank’s app.
Banks in Asia are equally loath to surrender the consumer, but the sheer scale of the underbanked means doing so is an economic way to serve them with a loan or other services.
“In the U.S., fintech services from companies like Plaid and Venmo are nice to have,” Schweitzer said. “They make it easier for wealth management and remittances. But they don’t represent fundamental change. Open-banking solutions have a much larger opportunity in Southeast Asia, where there’s no equivalent of a reliable credit score like [U.S. data analytics company] FICO.”
Use cases for emerging markets
This complexity may explain why fintech leaders of open APIs in the West have not entered or have struggled in Southeast Asia. Plaid and Sweden’s Tink don’t have a presence in Asia, while Britain’s Railsbank and TrueLayer have limited their deals to Australia.
Western fintechs are built to solve issues in developed markets, such as lowering the costs of credit cards – when most Asians don’t even have a credit card.
Schweitzer says the biggest uptake so far for Brankas APIs is e-commerce payments. Users can make purchases on a e-commerce site like Lazada or Shopee straight from their bank account, using Brankas APIs to verify their identity. This also spares merchants charges for using a bank debit card (often as high as 4 percent), and it gives banks a way to head off e-wallets and fintech challengers. “Banks can get a 100 percent direct margin on the bank transfer,” Schweitzer said.
Takeup of open banking by Asian fintechs has also been slow: many such companies were designed to address a particular pain point, such as alternative credit data, that they pitch directly to banks.
To many outsiders, the Southeast Asian open-banking proposition looks too immature.
Schweitzer dismisses such concerns: “It’s a misconception to think that embedded finance through APIs is too early, that not enough fintechs exist to consume APIs.” He says Brankas now serves more than 40 banks and 100 enterprise customers and channel partners in Philippines, Indonesia, Thailand, and Singapore.
Philippines forward
He is especially bullish on the Philippines, where more banks are coming round to open APIs. Rural and island communities are expensive to serve traditionally through branch networks: even moving cash around requires a fleet of boats.
Regulators in Manila have been actively supporting digital banking, usually issuing licenses to incumbents (which run these as purely digital subsidiaries) or to newly created banks affiliated with leading business families.
Malaysia’s CIMB Bank has a digital license in the Philippines, and most of its business now comes from a tie-up with GCash. GCash users can actually open a CIMB account directly in their GCash app; CIMB pays GCash a commission but doesn’t have to spend tons of money on kiosks and advertizing.
The Philippines also has a crypto-friendly stance, and Schweitzer says its digital banks are at the forefront of blending crypto-denominated services. This will propel more demand for APIs to connect banks, crypto firms and merchants.
He readily acknowledges he’s adopted much of the Plaid business model in his own business. But he believes emerging markets will prove to be more fertile ground than developed ones.
“Open finance is larger here than in the West,” he said. “The results are bigger, because we’re changing the economics of serving populations who have been neglected by incumbents.”
DigFin will conclude this series by taking a look at open banking in India.
