The banking industry is evolving with innovations aimed at improving customer experiences while benefiting stakeholders. One of the latest developments is Open Banking, which is more like an open book of financial data between banks and third parties. However, this new technology also presents challenges, such as the security of customer data and concerns about data access by third parties leading to increased cybercrime. For more information, read the article below.
What is open banking?
Open banking, also known as open bank data, is a practice that allows third-party financial service providers to access consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). This involves the sharing of account and data information among financial institutions, consumers, and third-party service providers, enabling non-banks to offer banking services and/or allowing apps run by third-party providers to access user data with the customer’s consent. Open banking is transforming the banking industry and has become a significant driving force for change.
The main goal of open banking is to increase competitiveness among financial institutions by disrupting traditional banking practices and breaking up the monopoly that conventional banks have over customers, which has resulted in a lack of innovation in the industry. The introduction of open banking brings both challenges and benefits.
Benefits of open banking
There are several benefits to open banking, beyond the opportunity it provides for non-banking companies to offer banking products and services to their customers. Some potential benefits include
- Increased competition: Open banking allows for more competition in the financial industry, which can lead to better prices and improved services for customers.
- Greater choice: Customers can choose from a wider range of financial products and services, and can switch between providers more easily.
- Improved financial management: Customers can more easily view and manage their financial information in one place, through the use of financial management apps and other tools.
- Enhanced security: Open banking can potentially improve security through the use of APIs and other technologies that ensure secure data transfer and storage.
- Increased convenience: Customers can more easily access and manage their financial information and conduct transactions through their mobile devices or other online platforms.
Industry Focus: Open Banking for Banks
- Mutual benefit: Open banking can create mutual benefit for both banks and fintech providers, as illustrated in the picture below.
- Increased competitiveness: Banks can stay ahead of the competition by adopting new technologies and services provided by fintech and non-financial institutions through open banking.
- Improved customer experiences: Open banking allows banks to understand the changes they need to make to adapt and deliver better customer experiences.
- Enhanced appeal: Banks can use open banking APIs to improve their appeal and meet the constantly changing demands of existing and prospective customers.
Business Focus: Open Banking for Customers
There are several ways in which open banking can benefit customers, including
- Convenience: Customers can enjoy greater convenience by being able to conduct transactions, remittances, and currency exchanges using their mobile devices.
- Customized products: Customers can access customized financial products and services that meet their specific needs and preferences.
- Personalized banking services: Customers can receive personalized banking services that are tailored to their individual needs and preferences.
- Single app access to multiple accounts: Customers can view and monitor their financial status and purchases across multiple accounts from a single app.
- Greater transparency: Customers can access all of their financial data in one place, which can help them make better credit decisions and access more lucrative deals.
- Nearly instantaneous credit and remittance: Customers can enjoy faster access to credit and more efficient remittance services.
- Varied payment methods: Customers can choose from a range of payment methods, including credit cards, buy-now-pay-later options, and more.
Mini Blueprint of Open Banking
Open banking is a system that allows financial service companies to access customer data from banks and use it to offer alternative financial services. However, access to this data must be approved by the customer and must be done in a secure and compliant manner. Open banking involves three main entities:
- Data attribute providers: These are financial service companies that store customer data and provide APIs for third parties to access and use the data.
- Third-party providers: These are third-party entities that access and use customer data stored by data attribute providers.
- Customers: These are the data owners who approve access to their data.
Open Banking Regulations and Implementation in Indonesia
Open banking have been a key focus in Indonesia, with the Bank of Indonesia issuing the Indonesian Payment System Blueprint 2025, which included the development of the National Standard Open API (SNAP). SNAP, which was inaugurated in 2021, includes technical specifications for open banking APIs, such as product/service API information, product/service registration API, account information API, and payment transaction API, with a focus on payment transaction API. SNAP also takes into account best practices from other countries, such as the UK, Hong Kong, Australia, Japan, Singapore, and India, and adopts the latest technology, security, and regulatory standards. The regulation of open banking APIs in Indonesia is governed and supervised by the Bank of Indonesia and the Financial Services Authority (OJK) through the Financial Services Authority Regulation (POJK) No. 12/POJK.03/2018 on Digital Banking. This regulation aims to increase financial inclusion while also prioritizing the security of customer data and the integrity of the payment system.
One example of open banking in Indonesia is the use of APIs by third-party financial service providers to access and use customer data from banks and other financial institutions. For example, a fintech company could use an API to access a customer’s transaction history from their bank, to offer the customer a personalized loan or investment product. To use the API, the customer would need to give their consent and the fintech company would need to comply with regulatory requirements and security standards. Other examples of open banking in Indonesia could include the use of mobile apps or online platforms that allow customers to view and manage their financial information from multiple sources in one place or the development of new financial products and services that leverage data from multiple sources to offer more personalized and convenient experiences for customers.
What We Do to fight Open Banking’s Challenges
While open banking can provide greater convenience and access to customer data, it also carries the potential risk of financial privacy and customer data being compromised due to poor security. Cybercrime is a major concern in the open banking environment, and banks and other financial institutions need to implement strong security measures to protect customer data and prevent hacking and other cyber threats.
This includes educating customers about the risks and best practices for protecting their data, as well as continuously improving the security of information technology systems through good IT governance. Implementing systems such as Electronic Know Your Customer (E-KYC) or Digital Onboarding can also help to protect against digital risks. Companies need to prioritize security in the open banking environment to ensure the integrity and safety of customer data. If you are concerned about potential risks in your digital business, it is advisable to consult with experts who can help you identify and mitigate these risks.
At ASLI RI, we offer a range of digital solutions and services to help businesses protect against cyber threats and other digital risks. You can share your needs and concerns with us by contacting us directly, and we will work with you to develop a customized solution that meets the specific needs of your business.