More than two years after the Hong Kong Monetary Authority (HKMA) issued the Open API Framework for the Hong Kong Banking Sector, development of open banking is stalling as the industry “is clouded by uncertainty on data and privacy governance,” according to S&P Global Ratings.
In a report titled The Future of Banking: One Year On, Hong Kong’s Open Banking Initiative Hits A Roadblock, the financial research and analysis firm cited data security as one of the major roadblocks to Hong Kong’s open banking initiatives, stating that regulators are still deliberating the security features of the Open API Framework.
The HKMA said last year that it was working with industry participants to publish technical standards before the end of 2020, after which it will set a new timetable for the next two phases of implementation. But since then, no official update on the rollout of Open API has been shared and implementation has been put to a halt.
In July 2018, the HKMA issued its Open API Framework, which focuses on allowing third-party service providers (TSPs) to access and use bank-generated data to provide broader scope of services. The framework sets out a four-phase approach for banks to implement open APIs, starting with information sharing on products and services, and finishing with sharing of transactional information and payments initiation services.
By January 2019, product information such as deposit rates, credit card offerings, and service charges from participating banks had been made available, and by October 2019, customers were able to apply for products through Open API. But since Q3 2019, implementation has stagnated before the deployment of phase 3 and phase 4.
The remaining two phases focus on data transfer processes. Phase 3 aims to allow account information to flow bilaterally between banks and TSPs, while in phase 4, customers would be able to start transacting across platforms.
For the HKMA, the objective now is to achieve accurate data aggregation and improve customer confidence in the use of related services. The regulator is therefore working with the industry on the details of API standardization, according to a recent blog post by BBVA.
According to S&P Global Ratings, the implementation of Open API, in addition to the new virtual banking licensing framework, will help create an ecosystem where non-bank, fintech players would be able to flourish. These companies will introduce new products that cater to an array of niche markets underserved by the large banks, and provide greater product transparency and convenience through the use of data and technology, the firm said.
Despite the herky-jerky implementation of Open API, Hong Kong has seen several developments aimed at promoting open APIs and facilitating open banking adoption.
In July, the Hong Kong Science and Technology Parks Corporation (HKSTP) teamed up with HSBC to launch API EcoBooster, a program that connects startups and the developer community with the bank to co-create API solutions in the areas of loan services, transactions and operation, credit card, digital payments and customer records management for the commercial and retail banking industries.
A research conducted by the Hong Kong Institute for Monetary and Financial Research (HKIMR) and released in May 2020 found that innovations relating to open banking and open APIs have been commonly applied by over 50% of incumbent banks, surpassing machine learning and predictive analytics (~48%), and customer identification and authentication (~41%).
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