Open Banking - Inevitable Trend

Open banking is a new and potential business model that allows third parties to create applications and provide services with banks’ data. The application programming interface (API) is a technology that allows third parties to access open data or secure access to an organization's closed data with the consent of the data owner and in compliance with relevant laws.

Open banking enables banks to access a wide range of customers at a reasonable cost, using other applications of partners to reduce transaction processing time and manual work, build optimal business solutions and provide the most comprehensive and convenient services for customers.

Typically, commercial banks modernize multi-utility technologies such as mobile banking, internet banking, contactless payment and QR code. Open banking platforms also help connect and integrate banking services into payment of power, water, telecom, health, education and online public service bills.

Dr. Nguyen Quoc Hung, General Secretary of the Vietnam Bankers Association (VNBA), said that banks can create personalized products and services, thus helping them retain customers and increase customer loyalty. In addition, access to customer data helps banks accurately rate customer credit. Open banking allows third parties to develop better personal financial management (PFM) applications, foster competition in the banking industry, and force traditional banks to enhance financial services.

Open banking is one of the important milestones in fintech transformation enabling digital transformation towards smartness and openness and creating new business opportunities for banks. The results are very positive but there are also possible risks resulting from this open model. Therefore, banks need to consider and prepare well to deal with input risks, synergistic effects and unpredictable problems, he said, adding that there is a need to build a release and isolation policy that ensures API persistence.

According to Dr. Can Van Luc, a banking expert, there are many emerging financial services, including open banking, peer-to-peer (P2P) lending and crowdfunding. In open banking, there are three popular models. The first is a real plus (that is to say, the bank integrates third-party services in the ecosystem and sells them to its customers in addition to its core services). Currently, banks in Vietnam are mainly using this model. The second is the passive model. With this model, the lender will be the agent and distributor for some large-scale third parties, such as bigtech. The third is a relatively optimal integrated model consistent with current trends. With this model, the bank will build its own platforms and have the right to allow a third party to close or open the connection, depending on its risk approach. Thus, banks can access many different products and services, both banking and non-banking services at the same time.

However, according to Mr. Hung, the shift of the banking business model from a closed ecosystem to an open one will be an important step that brings more benefits for the economy but also carries risks and challenges with it. Open banking is an inevitable trend of banking business in the Fourth Industrial Revolution. Therefore, Vietnamese commercial banks need to actively transform, ensure competitive advantages and meet the requirements of the roadmap for building a national digital banking system. Moreover, regulatory agencies also need to accelerate the completion of the legal framework related to digital technology application in banking activities.

Mr. Pham Tien Dung, Deputy Governor of the State Bank of Vietnam, said that open banking is a new topic that needs to be further researched because it will need to be fully understood before being added to the policy.
He added, in the near future, the SBV will finalize a draft to replace Decree 101/2012/ND-CP on non cash payment and issue a circular on open API in the payment field. The Government will also issue a decree on personal data privacy protection, electronic identification and authentication, directly related to operations of banks and the whole banking system. For that reason, banks and SBV units need to coordinate effectively in this matter.
He also noted that the Policy Committee and the VNBA need to continue to study this topic, specify and propose services deployed on Open API, thereby providing a basis to advise the SBV, ministries, branches and the Government to promulgate appropriate policies on open banking development in Vietnam.

By Quynh Chi