Now that Malaysia is incubating five digital-only banks, there is a new impetus to push for open-banking business models. But progress will remain limited, if it happens at all. Bank Negara Malaysia, the central bank, has no requirement around data sharing. The incumbent banks are not going to open their data troves to third parties.
This is not what Malaysian bankers like to say in public. At a recent banking conference in Kuala Lumpur, digital bank officers said nice things about the idea of open banking.
“Open API will be pervasive,” says Bill Streitberg, chief information and technology officer at Hong Leong Bank. “If you have standards and the ability to connected with other institutions, it opens possibilities for customer experience and servicing, from onboarding to anti-money laundering checks. It would help us integrate with fintechs. But we need to break down our internal [data] silos, and that’s not standardized. Now we have different security protocols, different message sets.”
Some couch it in more generic terms. “We’re not creating new products but creating new experiences for our customers,” said Kalyani Nair, group chief digital officer at Maybank.
But her idea of new experiences is how to leverage Maybank’s 400 branches to better support customers, not to share customer data upon the customer’s request with a fintech or a consumer business.
“If things are too friction-free, it becomes easier for fraudsters to get creative,” she added.
Getting personal
The appeal to banks, in theory, is to provide ‘hyper-personalized’ services, in which banks can make decisions around, say, extending credit or recommending a product or strategy in real time.
But sharing data is difficult. It opens a governance can of worms, as banks can expect to be liable if there’s a data breach, even if the fault is with a partner. There’s also the cost of maintaining a lot of application programming interfaces (APIs). Banks are still trying to do a better job at just manage the data they already have.
Banks’ data is extensive but it’s arranged by product or around types of transactions, rather than by customer. “How do we create a singular view of the customer, and their relationship across products?” asked Kanags Surendran, head of digital and personal segments at CIMB. He gave an example of the challenge: “I know you used a card at a shop but I don’t know what you bought, so I can’t make a recommendation. The data is incomplete.”
Open banking could, in theory, augment this. A customer can authorize a third party to share data with the bank. But this needs to be a two-way street.
New banks want it open
The heads of the new crop of digital-only banks are keenest to see open-banking models lead to embedded finance, in which a customer experiences financial services in the context of doing something else. These newcomers are tiny and will have to use such models to differentiate themselves.
“Open banking from the customer’s point of view empowers them to determine how they use their data, and who else can use it,” said Rafiza Ghazali, CEO designate of KAF Digital Bank, which has not yet launched. “The only way to do it is to allow your API to be consumed by other platforms.”
Pei Si Lai, CEO of GX Bank, the newly launched digital bank of Grab and SingTel, said, “We can achieve hyper-personalization within embedded banking.”
There’s no way banks can reach the goal of such granular insight if they rely on just their internal data, said Abid Adam, chief risk and compliance officer at Axiata, a telecom company that is also the primary shareholder of Boost, a fintech business that is launching a digital bank. “Banks have lots of data, but the quality can be poor.”
Incumbent pushback
What are these use cases? What can be hyper-personalized? For now, the specifics remain vague.
Alan Ni, CEO of Touch’n’Go Digital, a leading e-wallet, says open banking will enable people to get a holistic view of their various banking apps. He thinks some people have an account because they wanted to take advantage of a promotional offer, but are now saddled with having money scattered among providers.
But bankers say this is at best a niche use case that doesn’t justify the risks and costs of open banking.
“There’s no use case for open banking via APIs,” said Shailesh Grover, chief digital innovation officer at Hong Leong Bank, speaking directly to DigFin. He cited the UK’s case where open APIs are a regulatory mandate. “They mandated this and nothing’s come of it,” he said. “Customers don’t want the banks they trust to share their data.”
Bank Negara mandate?
Several digital-bank executives told DigFin they want some kind of mandate. They don’t think open banking can become a reality in Malaysia without Bank Negara forcing banks to share data.
What about all the happy open-banking talk that goes on in public?
“Bankers will say the things they think people want to hear,” one head of digital at a traditional bank told DigFin.
Another thinks banks are overwhelmed and lack enough incentive to handle the challenge of data sharing.
“We know that using the technology correctly, and using data analytics to understand the customer, is a big opportunity,” said Yew Choong Chew, chief data officer at AmBank. “But we’re not going to move beyond a certain amount of risk.”
He thinks banks will become more willing to pool data in order to run better analytics if it’s within a trusted framework, such as federated learning, an AI tool used by Google, Tencent, and others. “There’s a way to exchange data and create mutual benefits,” he said.
But banks need either a regulatory push, or the right incentives. Perhaps over time the brand-new digital-only banks will show embedded finance is a driver of growth without exposing the bank to risks. For now, however, those risks remain too scary. Malaysia’s banks have invested in digital capabilities over the past several years, and they know how to use these tools – within the safety of their own four walls.
