China is slow in experimenting with open banking and banking institutions are wary of the existing privacy and security laws in the country:
Introducing the concept of open banking, unlike in other developed countries, is complicated in China, feel experts, as the process of unlocking banking data may not be an easy task in the country. Although the country professes there is no privacy regimen, what is often seen and experienced is that there is an increasing emphasis on data privacy and this view seems to prevail while enacting legislations too. There are government efforts to control shadow banking and banking itself is a highly controlled operation and the environment is totally different in the country compared to other countries which have embraced open banking.
Very recently Chinese media carried reports that there is a plan to launch a new set of regulations and policies in relation to regulating open APIs and accelerating the formulation of regulatory standards in relation to open banking in the country. Especially, the authorities are looking at strengthening regulations covering client-end software provided by financial institutions, and expanding filing for mobile financial apps from trial areas to the whole of the country. There are apprehensions that deficiencies in the security and protection capabilities of client-end software provided by financial institutions have problems, including an excessive gathering of personal information and phishing scams. Such apprehensions have also been pointed out in the ‘Open Banking Development Research Report (2019)’ brought out by the National Internet Finance Association (NIFA).
Banks and financial services institutions intending to go for open banking have also to face several outmoded perceptions about cybersecurity and banking laws and the government’s enthusiasm in enforcing these laws. Existing policies also stipulate that financial services entities share private data with it.
BANKS RESPONSIVE
Yet, banks and financial services institutions are not entirely shying away. For example, WeBank, an online digital banking entity backed by Tencent, has recently announced the formation of a new fintech research lab called ‘Tencent Cloud-WeBank Fintech Innovation Lab’, in alliance with Tencent’s own Tencent Cloud. The lab will focus on open banking and engage in ‘joint research and technological innovation in the areas of basic frameworks, financial applications, and experiential innovation.’ A statement issued when the announcement was made said ‘The lab will pursue cooperative research and development of fintech applications directed at open banking scenarios, help financial institutions to create ubiquitous fintech services, and help drive the development of financial inclusion.’
Likewise, Industrial and Commercial Bank of China (ICBC) has entered into a strategic deal with Ant Financial and its parent company Alibaba to use Ant Financial’s technology and Alibaba’s platforms to drive its existing payments and e-commerce business and to strengthen its capabilities in global corporate finance, scenario-based finance, and financial innovation. The bank has made it clear that it has vast customer data but needs the technology and insights of Ant Financial to monetize it.
OPEN BANKING 4.0 ERA
While there have not been any perceptible moves towards adopting open banking in the country other than the regulators examining possibilities of enacting newer privacy laws, Chinese banking and fintech experts expect open banking to become a major trend in the near future. Some of them expect to have an ‘Open Banking 4.0 era’, stating at present banking is in the 3.0 stage, which is marked by mobile banking, and expect that emerging technologies such as 5G, AI, and AR, will pave the way for the open banking 4.0 era, which is marked by API banking. There are also expectations that open banking will create even more upheaval for the banking sector than online finance and smart finance, by enabling banks to serve as the sellers of products and services of other cooperative partners.
4 STANDARD MODELS
Analyzing how open banking took off in Europe and Australia, some banking technologists predict that in China there could be 4 standard models:
i) The product export model, which means opening up financial service capability and using APIs to incorporate products into various other premises and sites.
ii) The open platform model, which involves banks building external cooperative platforms and providing standardized financial APIs, components, and services, as well as simplifying the process of integration between banks and other enterprises.
iii) The third-party integration cooperative model, which involves achieving integration with third parties via interfaces.
iv) The implant model, which means using third party platforms or applications to promote products, such as the WeChat banks and small programs of various Chinese financial institutions.
NIFA had said in its latest report that as open banking develops in the country, a regulatory framework should be established to guard against systemic risks, and efforts should be stepped up to formulate industry standards, develop regulatory technology and strengthen the self-discipline of the industry.
