In this current era of digitalization and personalization, the concept of Open Banking has been rapidly disclosed among experts, and perhaps consumers. The term itself refers to a business model where data can be exchanged in order to be used for various inquiries inside the financial ecosystem.
According to fintecsystems, the starting point of Open Banking goes a long way back to the 1980s when online banking services were made available through dialing. In 2018, Open Banking legal framework was established within the EU’s Payment Services Directive 2 (PSD2). This regulation allows the creation of APIs that enables third-party providers (TPP) to request customers’ data retrieval.
Although disclosed among experts, there are still few conversations about this initiative with bank institutions and other regulatory makers, including in Indonesia. While regulators in Indonesia have yet to establish any legal framework regarding the implementation in the country, initiatives from banking institutions, non-banking institutions, and regulatory parties are emerging up to the current year of 2021.
Developments of Regulatory
Open Banking regulations are driven by the sense of improving financial inclusion while also putting consumer data safety on top-of-mind. In Indonesia, regulatory bodies like Bank Indonesia (BI) and Otoritas Jasa Keuangan (OJK) had given their statements on how they would support non-banking institutions, such as fintech companies, to adopt Open Banking strategies by establishing the legal framework. This is led by how fintech and Open Banking innovations aid the country’s economy, especially when extraordinary circumstances like COVID-19 emerge. One of the examples is how online loans made through P2P lending platforms reached IDR 146.25 trillion back in November 2020 (Source: OJK).
In 2016, BI announced the construction of the Indonesia Payment Gateway System / Sistem Pembayaran Indonesia (SPI) and also its regulatory sandbox for fintech. In 2019, the blueprint for SPI 2025 was officially launched to the public. The blueprint has five initiatives and one of them includes how BI would support Open Banking implementation through Open API standardization. Open API standardization by BI will include the technical, security, and the governance side of things.
Another regulatory party, OJK, which is the authorized government party that regulates and supervises financial sectors, granted licenses to a total of 152 Indonesian P2P or fintech lending platforms as per December 2020. Alongside BI’s SPI 2025, OJK has just recently launched its Financial Sector Master Plan / Master Plan Sektor Jasa Keuangan 2021–2025 (MPSJKI) back in December 2020. One of the five main priorities of MPSJKI stated that OJK will support innovation and digital financial transformation, including Open Banking.
Additionally to data compliance, Indonesia’s Perlindungan Data Pribadi (PDP) issued by Ministry of Communications and Informatics (KOMINFO) back in 2016, has also regulate about data protection in context of data retrieval, collection, analysis, broadcasting and etc. for Penyelenggara Sistem Elektronik (PSE). PSE can refer to companies that provide gateway systems or called Open Banking enablers. Although not as specific as to regulate financial innovations like BI’s SPI or OJK’s MPSJKI, KOMINFO still serves as the main regulatory body for consumer data protection.
Market-Driven Initiatives
As the basis of why new regulations emerge in the country, market-driven initiatives from banks, fintech, and other non-regulator parties plays a major key role in the implementation of Open Banking. Moving from the year of 2015, adding from Accenture, Banks like BCA, BRI, BNI, Mandiri, Permata, CIMB Niaga, Bukopin, BTN, BTPN, and Panin Bank have started to give open access to their API for fintech companies to explore with. Most banking institutions have segmented their API products in certain categories for different use cases, such as account verification, payment initiation, real-time balances, historical transaction, and others.
Other than providing Open APIs, banks have collaborated with fintech through hackathons and accelerator programs. For example we have Finhacks from BCA, Sembrani Wira Program from BRI, and BnV Labs from Bukopin. The program itself anticipates the creation of new opportunities in financial services through enhanced collaborations between the said banks and fintech participants.
While on the banking side of initiatives, it would not feel fair if it does not complement what initiatives fintech has in store. One of the most mainstream use cases of Open Banking is within the payment gateway. Payment has been a major focus within the Open Banking strategies. Players like Midtrans, Xendit, Brankas enable the Open Banking — payment system to be adopted by merchants that use their services. On the other hand, players like Brick, born in 2019, focus on financial data APIs for data verifications and account aggregations. The existence of these fintech startups become a catalyst and a bridge for the implementation of Open Banking by providing other companies with services, like integrating key APIs.
Various use cases appear before one another throughout the time, as products rely on consumers’ demand. Different fintech verticals will most likely apprehend the Open Banking implementation based on their use cases. For example, P2P platforms would probably prefer to use it for reducing manual KYC collection by directly verifying user financial statements, while investing platforms would probably prefer direct payments API.
Looking Ahead: Opportunities for Growth
With the rise of consumers’ demand in regards to financial ecosystem digitalization, it is expected that the financial trends, like payment initiation, online loans, e-commerce utilization, and others will exponentially increase in terms of number of users and also transaction volume. For instance, BI recorded a 30.44% YoY growth for electronic money transactions in December 2020.
Banks and fintech are expected to accommodate these demands with key innovations, specifically in Open Banking and Open API, to maximize both business growth and financial inclusion in Indonesia. It is expected that the adoption of Open Banking and Open API enables more room for innovation between banks and fintech. The Open Banking model allows institutions to create a more personalized financial product amongst consumers. Along with it, regulating a standardized Open API system in Indonesia, which will be expected to launch by 2025, is a necessary step to create a safer and more massive adoption of these innovations.
Featured image: Photo by Afif Kusuma on Unsplash
