PINTEC’s SaaS+ Service Model was included as a successful case on how fintech solutions contribute to open banking in the 2019 Banking Anywhere open banking and fintech development report by EO Intelligence. The report highlighted PINTEC’s advantages in deployment experience, targeted business scenarios and advanced technologies. Chief scientist of PINTEC, Ren Ran shared insights last week on the EO event on how fintech solution providers like PINTEC can help banks with technology support, traffic management and operations. PINTEC Academy extracted key content of the report for readers.
In July 2018, with the launch of API Bank Unbounded Open Banking by Shanghai Pudong Development Bank (SPD Bank), the industry generally believed that China had entered the first year of open banking development. Since then, big banks and small and medium-sized banks with technology capabilities began to lay out open banking one after another. According to the incomplete statistics of EO Intelligence, over 50 banks had launched or were launching open banking business as of May 2019.
EO Intelligence forged the research results into the 2019 Research Report on the Development of Open Banking and Fintech through desktop research, corporate research and expert interviews. It is the first research report on the development of open banking and fintech that is issued by a third-party research institution in China. The report has the following features: 1) it clarifies the definition of open banking and reveals the current industry status at home and abroad; 2) it demonstrates the role and power of fintech from the domestic perspective in the form of cases.
Overall, the report can be divided into three main parts including the current status of open banking, the ecological knowledge map of open banking and fintech, the challenges and development trend of open banking.
- The first part clarifies the definition of open banking and analyzes its practice at home and abroad based on its background.
- The second part focuses on the construction of the ecological knowledge map of open banking, which comprehensively analyzes how fintech enables open banking, as well as analyzes the three forms of open banking.
- The third part analyzes its challenges and development trend by researching the collisions of open banking.
1. Innovative business mode and idea
The concept of open banking was originated from the UK. The open banking in Europe, Australia and other countries and regions are mainly driven by regulation, while mainly driven by the market in Singapore and the US. Since the launch of PayPal API in 2004, the practice with the characteristics of open banking has begun to emerge. In recent years, domestic banks such as Bank of China and PingAn Bank have built open platforms, which are gradually expended from internal information sharing to the ability to open to external institutions. In 2018, China’s open banking was officially born and started to boom, but so far there has not been a widely accepted definition of open banking.
EO Intelligence believes that open banking is an innovative business mode and business idea. To the extent permitted by regulation, and with authorization from customers, commercial banks share information and services with other banking and financial institutions, fintech companies, vertical industry enterprises and other partners through API and other technologies, so as to realize the plug and play of banking services and products to jointly build an open pan-banking ecosystem.
The innovation of open banking is that it is not to provide independent banking or scenario services, but to form an open ecosystem centered on commercial banks based on financial technologies in order to realize seamless connection between banks, scenarios and customers, as well as realize “Banking Anywhere” so that banking services can be obtained anytime and anywhere.
Open banking has changed the original pattern of the banking industry and added partial participants to the original banking ecosystem. Driven by the wave of fintech, there are six categories of participants in the open banking ecosystem including the computer hardware/database service providers, financial cloud service providers, IT software and solution providers, commercial banks, vertical industry enterprises and customers.
These participants are not only located in one loop of the ecosystem, but also interwoven with other ecological participants. Some enterprises belong to different ecological positions, but jointly form the ecological closed loop of open banking.
2. Based on fintech, open banking varies in forms according to their open capacities
The application of financial technologies such as the financial cloud, big data, smart marketing, smart wind control and smart assistant not only improves the efficiency of the original business of commercial banks, but also lays a foundation for the development of open banking.
With the introduction of relevant financial technologies, commercial banks are faced with the three levels of open banking forms, namely “bank as a service”, “open account information” and “shared income platform”, according to the degree of information openness. The openness of the three forms rise in turn, but commercial banks cannot make decisions independently. The construction of open banking is not only depended on the independent choices of commercial banks, but also closely connects with policy requirements, the acts of ecological partners and the development of the ecosystem.
3. The role third-party fintech companies in open baking
The interconnections between banks and between banks and business scenarios usually need an intermediary for technical support, traffic screening, differentiated operation and so on. PINTEC, as a fintech solutions provider, is playing such role as an “adapter”.
For fintech companies like PINTEC, their technological and business management capabilities can help financial institutions to connect with various scenarios in the open banking ecosystem, so that banks do not need to build a complete set of open banking infrastructure by themselves, while enjoying the benefits that open banking brings. The connectivity provided by fintech companies greatly reduces the time cost and capital cost for banks to access different business scenarios.
The demands for fintech products vary between different banks. For large banks with strong technological strength, they have extensive customer resources and network resources. Thus, in the process of open banking, they need to obtain point-like services, such as single or multiple data models and risk management models. For small and medium-sized banks, more extensive services are needed, including consultation, SaaS support, preliminary risk management, in-loan and post-loan management etc.
Thus, PINTEC builds the SaaS+ service model. Its end-to-end solution is similar to the idea of open banking, while addressing the demands required by both financial institutions and business scenarios. For financial institutions, different financial products should be provided with different financial scenarios, and different choices on risk management strategy are required for different customer groups. For the business scenarios, a proper access to financial institutions and financial products can greatly improve their user consumption rate and retention rate.
As an emerging business concept in the digital age, open banking is globally recognized and accepted, and it is now on the menus of banks in many countries around the world. However, any reform and transformation will inevitably be faced with certain risks and challenges, and the transformation of traditional commercial banks to open banking is no exception.
EO Intelligence believes that open banking will mainly face five major challenges including 1) Compliance risk caused by unclear policies and regulations; 2) Organizational structure reform problems caused by inconsistency between Internet architecture and centralized architecture; 3) Unclear risks in the open banking business model; 4) Customer privacy protection and data security issues; 5)Technical risk from hackers.
However, open banking will become an irreversible trend in the banking industry. In market-driven countries and regions, open banking is expected to experience a faster growth and have more diversified business models and forms.