Countries worldwide are setting up legal frameworks to unlock the potential of this modern banking model. Vietnamese banks are eager to join the movement, but they're still waiting for the necessary legal infrastructure to be put in place.
The Next Wave in Finance
Digital banking has swept the world, and now a new challenger is vying for the crown: open banking. This innovative model allows third-party developers and companies to access financial data and services through secure APIs, fostering an ecosystem of personalized financial solutions.
Germany was an early adopter, launching the "Open Bank" project in 2010. This collaboration with major state-owned banks established open APIs, empowering fintech players and building the foundation for open banking's future. China followed suit, with Bank of China proposing an open platform in 2012 and officially launching it in 2013.
Open banking's potential to revolutionize finance is undeniable. By opening the door to innovation and competition, it promises a future of customized financial tools and deeper customer engagement. As more countries embrace this new wave, the financial landscape is poised for exciting changes.
The year 2015 marked a turning point in finance with the EU's revised Payment Services Directive (PSD2). This directive paved the way for open banking, allowing third-party payment providers to securely access customer bank data with their consent, thanks to open application programming interfaces (APIs).
Singapore was quick to embrace the open banking wave. In 2016, its Banking Association and Central Bank jointly published a detailed guide for financial institutions and FinTech companies on building and operating Open API-based systems, laying the groundwork for a thriving local ecosystem.
The momentum didn't stop there. 2017 saw Japan, Australia, and Hong Kong join the bandwagon, announcing their own regulations surrounding this innovative model. These developments underscored the rapidly growing global recognition of open banking's potential to revolutionize the financial landscape.
2018 marked the official dawn of the open banking era. In a bold move, the UK's Competition and Markets Authority (CMA) took center stage in 2019. They declared that nine major banks – household names like HSBC, Barclays, and Santander – had to set clear data standards and make their data readily accessible through secure online channels for authorized third parties. This meant customers could now choose who accessed their financial information, paving the way for personalized and innovative financial tools.
Across the globe, the open banking tide continued to rise. By the end of 2020, Asia alone boasted 77 thriving open banking platforms, nurturing nearly 1,500 groundbreaking products and services. This remarkable growth, averaging an impressive 228% year-on-year, showcased the immense potential of open banking to redefine financial landscapes worldwide.
Open banking isn't just a technical trend; it's changing how people manage their finances. Take China, for example. Leading the charge are WeBank, a digital bank, and WeChat, a ubiquitous mobile payment and messaging app. They've embraced open banking to create a one-stop-shop for all your financial needs.
Gone are the days of juggling multiple apps. With WeChat, a customer can schedule appointments, transfer money, even hail a taxi – all within the same platform. This seamless integration is a powerful example of how open banking can simplify everyday life.
Cautious Steps Towards Open Banking
While the global financial landscape races towards open banking, Vietnamese banks are adopting a more measured approach. This isn't due to a lack of agility, but rather a focus on navigating the still-evolving regulatory landscape.
OCB, for instance, has taken the lead by launching its API portal platform in late 2019. With over 30 APIs on offer, it allows partners to integrate with OCB's system and create a wider financial ecosystem. VietinBank has followed suit with their VietinBank iConnect platform, boasting over 127 APIs and collaborating with 73 partners. BIDV is also in the game, completing their payment portal to connect with nearly 2,000 retail service providers and payment intermediaries, paving the way for a more open future.
These initiatives showcase Vietnamese banks' cautious optimism towards open banking. While waiting for clear regulations, they're laying the groundwork by building partnerships and establishing API infrastructure. This proactive approach positions them to hit the ground running once the regulatory framework is in place.
Data from the State Bank of Vietnam reveals a positive outlook for open banking in the country. Over 72% of credit institutions plan to implement APIs, and nearly half have already built them for third-party access. Even more encouraging, 65% are poised to launch Open API platforms, with a third boasting a high level of readiness.
However, Vietnam faces a familiar hurdle: a legal framework lagging behind technological advancements. This creates an uncomfortable dance – banks eager to innovate, yet forced to move cautiously until regulations catch up. This "reality gap" has become a hallmark of Vietnam's digital journey, not just in finance.
The dream of open banking in Vietnam has strong foundations, laid by key initiatives like the government's focus on digital transformation and embracing the Fourth Industrial Revolution. Policies like eKYC for opening bank accounts and the pilot Mobile Money program pave the way for a more connected financial ecosystem.
However, a crucial piece is missing: a dedicated legal framework for open banking itself. Right now, Open APIs are developed individually by each bank, lacking common standards or interoperability. As Governor Dũng of the State Bank of Vietnam rightly points out, it's like building isolated islands instead of a shared bridge.
Banks face a difficult balancing act. Customer demand for seamless financial experiences pushes them to innovate, but the lack of clear regulations forces them to proceed cautiously. They're laying the groundwork with APIs and pilot programs, but ultimately, they're waiting for the legal bridge to be built before truly unleashing the power of open banking.
Mr. Trần Công Quỳnh Lân, Deputy General Director of Vietinbank, speaking from an insider's perspective, pointed out certain risks that require clarification within the legal system. Questions such as the criteria for connecting to the bank's API, the entity responsible for evaluation and licensing, and whether the bank offering the service is obligated to verify and take responsibility for the nature of the business activities of API users need to be addressed.
In scenarios where a gambling company utilizes an API for fund transfers, determining accountability becomes crucial. Moreover, financial experts draw attention to additional risks concerning privacy and data security. Given its nature, Open Banking is expected to be highly transparent, but there currently lacks sufficient mechanisms, policies, and overarching standards for security and information safety in this model.
Nevertheless, there shouldn't be high expectations for a robust legal framework for this model. Initially, the preliminary version of the Draft Law on Credit Institutions (amended) included a reference to digital banks in Article 97. However, subsequent drafts omitted this content. The version presented to the National Assembly exclusively addresses electronic banking activities, focusing on the digitization of traditional banks. It doesn't explicitly discuss the broader concept of digital banking, and there's a lack of specification regarding the adjustments needed for the digital banking model.
