Last week the Hong Kong Monetary Authority launched a consultation for “Open API Framework”. The consultation is part of “seven initiatives announced by the HKMA to prepare Hong Kong to move into a New Era of Smart Banking” with the aim to “facilitate the development and wider adoption of API by the banking sector, thereby stimulating innovations and improving financial services through collaboration between banks and tech firms”.
Despite opening up consultation mid January 2018, the original target date to “finalise the policy on Open API” was “by the end of 2017” so it’s unclear if this goal-post is being delayed or not or how serious the HKMA really is for this consultation. More is unclear – under the label of “smart banking”, it’s unclear just what that is. A label left undefined is a label that is hard to argue against. Even a speech by Mr Norman Chan, Chief Executive of the HKMA shepherding “A New Era of Smart Banking” was unclear on the definition beyond listing the laundry list of seven initiatives lacking connective tissue to give a picture of the whole. The convenience of the “Smart Banking” monicker is that it is open-ended enough of a term to be subject to interpretation, and, like other “Smart anything” labels that governments like to attach to initiatives (like “Smart City”), is it sounds good enough to sound like progress no matter what is done.
With the “Open API framework”, this initiative sounds just geeky enough for an industry analyst to gloss over the details and miss out on its importance, and lost opportunity. The Open API framework has roots in the UK, as part of “Open Banking”, a label that already has a recognised definition and history. The HKMA doesn’t have the baggage of Open Banking by using the ambiguous “Smart Banking” term instead, and define it – or not define it – as it sees fit. Taking effect this year, the UK introduced legislation mandating the opening and connectivity of top UK banks, making it more efficient for consumers (personal and commercial accounts) to compare banking products and services, as well as connect third-party banking services (such as lenders and accounting software). It creates the foundation for a more competitive banking environment, as well as an ecosystem to support fintech, opening up much opportunities for achieving the goals shared by HKMA for smart banking: “[facilitate] very rapid innovations that help provide personalised services and much better customer experience”. The UK initiative is taking off worldwide, with much attention. Without much choice, the top UK banks are cooperating on implementing Open Banking, with agreement on its DNA: the Open API framework, which is the set of standards and protocols for data connectivity between banks, third-parties, with full control by the consumer.
The mandate of Open Banking is to “improve competition, efficiency and stimulate innovation” leveraging how “data could be used to help people to transact, save, borrow, lend and invest their money”. Security is built-in from the ground-up, giving consumers control (through permissioning and revoking permissions) over their data. Built on principles of open data, the framework opens up connectivity for the fruits of fintech to flourish, among the connective tissue in an ecosystem of banks, consumers, and data. Without Open Banking, everything remains as it is: a negotiation, trial-and-error, and barriers to exchange and connectivity.
This is clear in the review of the HKMA Open API consultation. HKMA is skipping the UK’s Open Banking practice of adopting legislation to force banks to participate and cooperate (and compete). As spelled out in the HKMA consultation, the intended benefits and goals are disconnected from the mechanisms to get us there. The HKMA’s Open API framework is a broken set of vague objectives and inadequate standards. Banks are left to voluntarily adopt their own standards – which are not standards at all – on their own timelines and roadmaps.
The consultation document is honest in its comparison of the UK’s Open Banking initiative and HKMA’s Smart Banking initiative: HKMA will not risk bank profits (or “competitivity”) with Open API, but help nudge them enough to stay up-to-date with international trends:
“The UK needs to adopt this model because there is a specific mandate to address – to allow personal customers and small businesses to compare products and switch between banks – and therefore a set of focused and standardised Open API could be specified“ (paragraph 61) this coincides with “…the policy objectives of Open API for the Hong Kong banking sector to maintain its competitiveness and to offer innovative/convenient service to improve customer experience are general in nature.” (paragraph 64).
If done effectively, Open Banking lays the foundation for consumers and the industry to benefit with competition and connectivity to a digital economy. Without it, and loose strands of Open API standards and disconnected initiatives such as those under HKMA’s “Smart Banking” direction, at best the benefits remain to be seen.