Decoding Open Finance with HSBC: Valuable Insights by Industry Experts

It was our honour for Appsynth to speak at HSBC Digital Payments Week 2023 this month on the topic of ‘Market Collaboration and Integration: Open Finance and the Impact to Business’.

Bob Gallagher, Founder and CEO of Appsynth, joined Todd Schweitzer, Co-founder and CEO of Brankas, Patrick Gentry, Co-founder and CEO of Sprout Solutions, and Art Tanseco, Country Head of Global Payments Solutions at HSBC Philippines, for the online seminar.

The speakers each gave a presentation before joining a panel discussion on the topics of open banking and embedded finance, sharing their experiences implementing these solutions across the Philippines, Thailand and beyond.

This is a followup article to answer some of the key questions raised, shedding light on the various factors to keep in mind when entering the world of open finance.

What are the basic principles of Open Finance?

1. API Integration

Open Finance is underpinned by Application Programming Interfaces (APIs) to facilitate the sharing of financial information between parties. These APIs ensure that data is exchanged securely between banks and third-party providers.

2. Customer Consent and Control

Open Finance is built on the principle of customer consent. Individuals and businesses have the authority to decide who can access their financial data, what it can be used for and the duration of access. This control ensures privacy and data protection.

3. Partnerships and Collaboration

Open Finance encourages partnerships between traditional banks and non-traditional financial service providers, such as telecom companies and e-commerce platforms. These collaborations aim to expand access to innovative financial services.

4. Customized Financial Products

Through access to customer data and transaction history, Open Finance enables the creation of customized financial products. These can include in-app payment solutions, microsavings accounts, money transfer services, credit scoring and microinsurance.

5. Financial Inclusion

Open Finance plays a pivotal role in bringing the unbanked population into the formal financial system. It provides user-friendly mobile applications, simplified account opening processes and low-cost financial products tailored to the needs of financially underserved individuals.

How can Open Finance benefit individuals and businesses in The Philippines? 

1. Improved Access to Credit

Open Finance enables quicker and easier access to credit for individuals and businesses. The Union Bank’s digital quick loan service is a working example of this. The initiative enables Filipinos to obtain short-term credit within seconds. This is especially valuable for those facing urgent financial needs or business expenses.

This was made possible through the implementation of low-code technology and the embrace of API-based open banking standards set by the Banking Industry Architecture Network (BIAN) – a collaborative, not-for-profit ecosystem formed of leading banks, technology providers, consultants and academics from all over the globe.

What sets this service apart from a traditional bank loan model is its efficiency. Approval times clock in at under 60 seconds, and customers receive the benefit of immediate cash disbursement.

2. Financial Inclusion

The Philippines, like many countries, faces challenges related to financial inclusion. In 2022, the Bangko Sentral ng Pilipinas reported that approximately 46% of Filipino adults lacked access to formal financial services. Open Finance can help address this issue by offering user-friendly, digital financial products that are accessible to a broader range of people, including the unbanked and underbanked.

3. Lower Costs

Open Finance solutions come with lower transaction costs compared to traditional banking services. This cost-effectiveness can benefit both individuals and small businesses, allowing them to save money on fees and charges associated with financial transactions.

4. Innovation and Competition

Open Finance encourages innovation and competition in the financial services sector. If banks in the Philippines collaborate with third-party providers, they can offer a wider range of innovative products and services. This fosters healthy competition, leading to better financial products and terms for Filipino consumers and businesses.

5. Data-Driven Insights

Open Finance leverages customer data to provide personalized financial solutions. Individuals and businesses can benefit from these insights, receiving tailored recommendations, credit scoring and financial planning assistance, which can help them make informed decisions and improve their financial well-being.

What are some applications of Open Finance for businesses?

1. Improved Cash Flow Management

Open Finance provides businesses with access to real-time financial data through APIs. This enables them to monitor their cash flow, track transactions and make more informed decisions about expenditures and investments.

2. Payment Processing

Businesses can leverage Open Finance to streamline payment processes. They can integrate payment APIs to offer various payment options to customers, automate invoicing and reduce payment processing costs.

3. Access to Capital

Open Finance can connect businesses with a broader range of lenders and investors. Through APIs, businesses can share their financial data securely with lenders, making it easier to obtain loans or attract investment capital.

Additionally it can facilitate supply chain finance by connecting businesses with lenders willing to provide financing to suppliers. This helps stabilize supply chains and ensures the timely delivery of goods and services.

4. Expense Tracking and Reporting

Open Finance enables businesses to automatically track expenses by integrating with financial management software. This simplifies expense reporting, helps identify cost-saving opportunities and ensures compliance with financial regulations.

5. Cross-Border Transactions

For businesses involved in international trade, Open Finance can simplify cross-border transactions. It provides access to competitive foreign exchange rates and international payment solutions, reducing currency conversion costs.

6. Financial Planning and Analysis

Open Finance data can be used for financial forecasting and analysis. Businesses can employ advanced analytics to make strategic decisions, optimize resource allocation and identify growth opportunities.

7. Supplier and Vendor Management

Open Finance can streamline supplier and vendor relationships. Businesses can automate payments, track supplier performance and negotiate favorable terms based on their financial data.

8. Risk Management

Open Finance data can help businesses assess credit risk when extending credit to customers or partners. It also enables better risk management by providing insights into market trends and financial stability.

9. Personalized Financial Services

Businesses can use Open Finance to offer personalized financial services to their customers. For example, banks can collaborate with businesses to provide tailored financing options or insurance solutions based on customer transaction data.

10. Compliance and Reporting

Open Finance can simplify regulatory compliance by automating reporting processes. Businesses can ensure that they adhere to financial regulations and reduce the risk of fines and penalties.

11. Innovation and Partnerships

Open Finance encourages businesses to innovate and collaborate with fintech companies and other financial service providers. This can lead to the creation of new products and services that cater to evolving customer needs.

What risks should businesses be aware of?

1. Data Privacy and Security

Open Finance relies on the sharing of financial data through APIs. This can raise concerns about data privacy and security. If not properly protected, sensitive financial information can be exposed to cyberattacks, data breaches or unauthorized access.

As financial data becomes more accessible, there is an increased risk of identity theft and fraud. The interconnected nature of Open Finance systems also makes them susceptible to cybersecurity threats.

2. Regulatory Compliance

Businesses and financial institutions must comply with data protection laws and other financial industry regulations. Failure to do so can result in legal and financial penalties.

3. Data Accuracy and Quality

The accuracy and quality of financial data shared through Open Finance APIs are crucial. Errors or inaccuracies in data can lead to incorrect financial decisions, credit denials or financial losses.

4. Lack of Consumer Awareness

Many consumers may not fully understand the implications of sharing their financial data through Open Finance. Lack of awareness can lead to poor decision-making or unknowingly granting access to sensitive information.

5. Over Reliance on Technology

Over reliance on technology and automation can pose risks. Businesses may become vulnerable to disruptions in API services or outages that can impact financial operations.

6. Concentration Risk

If a few dominant technology providers or financial institutions control Open Finance APIs, this can limit competition and innovation, potentially leading to anti-competitive behavior.

7. Data Monetization

While Open Finance aims to benefit consumers and businesses, there’s a risk that financial institutions or third-party providers may excessively monetize customer data without providing adequate value in return. Media exposure of such a practice will erode public trust.

8. Market Fragmentation

The proliferation of different Open Finance standards and APIs can lead to market fragmentation. This may make it challenging for businesses to integrate with multiple APIs and serve customers effectively. This reiterates the need for regulated, established standards, industry transparent and collaborative technologies.

9. Financial Inclusion Challenges

While Open Finance can promote financial inclusion, it may also leave some individuals behind due to their lack of digital literacy or access to technology. To mitigate these risks, regulatory bodies must establish guidelines and standards for Open Finance, and businesses must invest in robust cybersecurity measures, data protection and compliance programs.

Individuals should also exercise caution and be selective about which third-party providers they grant access to their financial data. Ongoing education and awareness campaigns are key to mitigating many of the aforementioned risks.

What is Embedded Finance and how can this benefit businesses?

Traditionally, financial services have been offered by dedicated financial institutions like banks and insurance companies. However, with the rise of digital technology and the increasing interconnectedness of industry, companies outside the financial sector are now leveraging their existing customer base and digital infrastructure to provide financial services directly to the consumer. This is known as embedded finance.

Embedded finance involves the seamless integration of banking, payment, lending, insurance and other financial services directly into the digital ecosystem of industries such as e-commerce, lifestyle apps and social media.

By embedding financial services, companies can enhance the user experience by offering convenient financial solutions within their platforms. For example, a ride-hailing app might offer a feature to directly pay for rides using a linked bank account or credit card, or an e-commerce platform might provide instant loans or installment payment options at the checkout.

The emergence of embedded finance has opened up new possibilities for businesses of all sizes and types to seamlessly integrate financial service offerings into their end-to-end operations. With on-demand servicing and pay-as-you-go pricing models, businesses can leverage embedded finance to enhance their customer experience, drive revenue growth and unlock new monetization opportunities.

What is “Banking-as-a-Service” or BaaS?

Banking-as-a-Service” (BaaS) is a financial services model that allows non-bank entities, such as fintech companies and startups to provide banking services and products to their customers without the need to obtain a full banking license. Instead of building their own banking infrastructure from the ground up, these entities can partner with established banks or financial institutions that offer BaaS platforms.

BaaS relies on API-based integration, offering businesses access to a set of APIs that enable the seamless integration of banking functions into their applications or platforms. Key characteristics of BaaS include regulatory compliance, customization options, enhanced customer experience, innovation, scalability, cost-efficiency, access to core banking features and the promotion of financial inclusion. BaaS platforms are designed to help businesses quickly bring new financial products and services to market, while also providing a more extensive range of banking services to their customers. This collaborative approach between banks and non-bank entities fosters innovation, accelerates growth and expands financial service offerings, ultimately benefiting businesses and consumers alike.

What are the challenges of implementing Open Finance in The Philippines?  

1. Digital Literacy

The success of Open Finance relies heavily on digital literacy. Currently, 83 percent of Filipinos use the internet, and the country has well above average internet usage at 10 hours per day. The global average for social media usage is 2-3 hours per day; in the Philippines it is double – 4-5 hours. This highlights the issue that many users don’t use the internet for learning, or to tap into its potential to facilitate employment or grow business, particularly in rural areas. (Source: Department of Information and Communications Technology (DICT))

Digital literacy is not determined by connectivity but rather digital skill level. Education and awareness programs are needed to help individuals start using Open Finance platforms, and to make sure they are capable of making informed decisions about sharing their financial data.

2. Standardization and Interoperability

Ensuring that different banks and financial institutions  in the Philippines adopt compatible standards for Open Finance APIs is essential. Interoperability challenges can arise if there are multiple, incompatible systems, making it difficult for consumers to access services from various providers seamlessly.

The absence of standardization and interoperability in Open Finance can give rise to significant security challenges. When systems and entities within the Open Finance ecosystem don’t adhere to common standards and can’t seamlessly work together, it creates an environment prone to security vulnerabilities.

Inconsistent data formats and exchanges can result in data integrity issues, potentially leading to breaches or unauthorized access. Misconfigurations during integration can inadvertently expose sensitive financial data or create exploitable vulnerabilities.

Furthermore, the presence of varying security measures and vulnerabilities across incompatible systems allows cybercriminals to target the weakest link, posing a heightened security risk. Complexity in customized integrations can complicate security management, making it harder to monitor and secure the ecosystem effectively.

To mitigate these security concerns, the establishment of industry-wide standards and best practices is vital. These standards can ensure consistent data handling, robust authentication methods, and a unified approach to security across all involved entities. Regular security audits, continuous monitoring, and collaborative efforts among stakeholders are essential to maintain a secure and resilient Open Finance environment while enabling the innovative potential of the ecosystem.

How can the business community collaborate with the financial services sector to increase awareness on Open Finance and pursue opportunities to apply this to business use cases?  

1. Collaboration & Education

Active involvement in industry forums, associations and networking initiatives allows businesses and financial institutions to share insights, discuss best practices and stay updated on the latest developments. This engagement promotes a culture of collaboration and knowledge sharing.

In addition, the promotion of education and training initiatives is key. Businesses can collaborate with financial institutions to develop educational programs, workshops, webinars and seminars aimed at demystifying Open Finance. These initiatives help address concerns, build understanding and showcase the benefits of Open Finance.

Furthermore, the development of feedback loops ensures that Open Finance solutions continually evolve to meet business requirements and user expectations. This iterative process contributes to the development of more effective and user-friendly applications.

2. Pilot Projects

Businesses and financial institutions can embark on pilot projects together to demonstrate practical applications of Open Finance. These projects should focus on specific use cases relevant to the business community, showcasing tangible benefits and encouraging broader adoption.

Collaboratively creating Open Finance-enabled products and services tailored to specific business needs, such as seamless payment solutions or loyalty programs, highlights the real-world potential of Open Finance.

If B2C, pilot projects should be customer-centric. By prioritizing user consent, transparency and data protection, while creating services that genuinely address customer needs, businesses and financial institutions can foster trust and drive Open Finance adoption.

3. Regulatory Standards & Data Sharing

Advocating for supportive regulations and industry standards is also a shared responsibility. Businesses and financial institutions can engage with policymakers and regulatory bodies to help shape a regulatory environment that promotes responsible and secure Open Finance practices.

The establishment of clear data-sharing agreements is vital. These agreements, collaboratively developed, should outline the terms, conditions and benefits of sharing financial data, ensuring ethical and secure data utilization.

4. Cybersecurity & Risk Management

When considering cybersecurity and risk management, joint efforts are essential. Both parties can collaborate to identify potential threats, implement robust security measures and establish incident response plans that safeguard financial data.Lastly, collaborative marketing efforts, including joint campaigns, informative content and case studies, can effectively raise awareness of Open Finance among businesses and consumers, highlighting the tangible benefits of its adoption.


If you are a financial institution interested in the opportunities open finance could offer, or a consumer business seeking service expansion through embedded finance, get in touch and talk to one of our team.

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