Open Banking in Singapore: A Thought Experiment
Digital banking solutions have come swiftly and discreetly like a tide, especially in tech-savvy cities like Singapore. Trying to recount transitions I’ve made in my life — from cash, to internet banking, to mobile banking, and now e-wallets — is a haze to me, and also a testament to the seamless nature of these technological developments.
The next evolution is on the horizon, in the form of Open Banking, and in this article I’ll be focusing on its broad implications in Singapore; although I sense that much of this will sound familiar to readers from around the globe.
Open Banking: A Brief History
There’s been a concerted effort in the last decade to protect the data rights of individuals across the world, following massive breaches (think Yahoo in 2013, or Facebook in 2018), and heightened concerns about the ethical use of personal data by companies.
Europe has been a leader in this push, with GDPR (General Data Protection Regulation) kicking in 2018, and an updated PSD2 (Payment Service Directive 2) in 2019. Where GDPR empowers the individual to take control of how his/her data is collected and implemented by all companies, PSD2 is a policy aimed at democratising customer data held by both big and small financial institutions. The intent is to level the playing field, encourage Open Banking, and spur innovation in the finance industry.
In contrast, Singapore only established PDPA (Personal Data Protection Act) in 2012, and hasn’t passed any legislature over Open Banking practices like Europe has with PSD2. It has signalled its intent through government initiatives like SmartNation, providing its own APIs and playbook, and as of this time of writing, prefers the organic approach over legislation. Local banks responded by creating full-fledged API systems in preparation for this shift, and as recent as Jan 2020 the government received 21 applications after it announced the availability of 5 new digital bank licences.
There’s been a ton of activity — what does this all mean to us though? From this point forth, I’m going to float some predictions your way.
Designing Insightful Interfaces
Once Open Banking kicks in and customers start giving consent to their financial institutes, be it banks or 3rd party services, we can assume that individuals will desire a holistic view of their finances. Companies will strive to accomplish this by plugging all of a customer’s information into one place — balances from the multiple bank accounts and e-wallets you own, all your insurance and investment products, as well as your outstanding liabilities like loans and taxes.
The vision for companies will be to become full fledged digital financial advisors, and I believe that MAS allowing CPF data to be extracted from its APIs will be a game-changer to this agenda. CPF is the Singaporean version of a pension scheme, and it has been almost a decade since it was first available online to citizens.
There is evidence to suggest that consumers engage in mental accounting when thinking of money, and assign functions to different categories or buckets of money. With the inclusion of CPF data, a unified, real-time view of spending, saving and retirement funds can potentially reframe the way customers think about their net worth both in terms of the present and future.
According to a recent poll, one in two Singaporeans do not feel fulfilled in life, with finances cited as the biggest obstacle to achieving life goals. If this is to be believed, there is ample opportunity for companies to influence the way customers manage their money through some form of financial planning. This is also where UX needs to work extra hard for customers — to display information from multiple sources succinctly, and surface insights and recommendations intelligently.
Dealing with Data
Banks and financial institutes might soon need to give up the idea that customers “belong” to them, in a world where customers are the custodians of their own data. Currently, all forms of customer data related to finance and behaviour belongs to the companies you bank with, and is monetised through APIs— this means that companies need to pay each other to access specific customer data.
Open Banking will commoditise data in a way that hasn’t before and possibly turn the game on its head — what would happen if a company incentivises data, and offers to pay customers directly for it? In a utopian world where personal data rights are legislated in Singapore, shouldn’t customers be given the right to be forgotten by a financial institution?
Friction to exit services will also need to be rethought — it’s currently extremely easy for customers to buy products and subscribe to services, but much tougher to cut loose. I imagine a new standard UX element to facilitate this “decoupling”, the same way the unsubscribe button was conceived in Gmail and on EDMs.
Companies that are comfortable being transparent will edge out their competitors in the long term, lessen the occurrence of dark UX patterns in their products, and focus their efforts on creating experiences that customers want to be a part of.
The Ecosystem Play
It is an open secret that many companies aspire to have the kind of dominance that Tencent enjoys in its domestic market; their now famous ecosystem model has inspired many others to replicate the same success in other parts of the world. Open banking gives wings to those that are gunning for such a business model, especially with regards to data acquisition.
Data acquisition is the holy grail for ecosystem companies who seek to further extract value from their customer base. Being able to observe everything a customer does — what he spends on, how much he saves, where he travels, what he eats, creates a huge business advantage. The greater the access to data, the more accurately patterns of behaviour can be capitalised on, and the better value propositions can be shaped.
As it is, banks in Singapore offer stacking perks according to the variety of financial products they have with them (think OCBC 360, DBS Multiplier, UOB One) to attract those who are underbanked ie. people who own a bank account but remain underserved in areas such as credit, investment and insurance. They have also forayed into e-commerce in an attempt to lockdown their customer base with more convenience and loyalty benefits.
Those attempts are being matched by super-apps like Gojek and Grab, South East Asia’s biggest tech companies that are looking to capitalize on Open Banking by diversifying into offering financial products. Pair this with news that there will be 5 more digital banking licenses issued in June 2020, and you have all the ingredients for a heated race for the ecosystem crown.
It is unlikely that any single company here will enjoy a Tencent-like dominance however, even as many make moves towards an ecosystem-style moat. Singaporean consumers are notoriously experimental, with three in five stating that while they prefer to stick with their favourite brands of products, they can be persuaded to experiment with others. Could this behaviour be a response to the glut of competing services? There is also the overlooked Competition Act that might come into play if the market is threatened by a dominant player. UX research teams (like the one I work in) will need to work hard to pinpoint customer behaviours and desires, and validate if the growing complexity of value propositions and digital interfaces live up to their expectations.
What’s Next?
There might be alot of “what ifs” in this big picture view of Open Banking in Singapore, but I am both excited and optimistic about the future of banking on this little island. There are ample opportunities for companies, big and small, to make an impact once it comes full swing, but the best part of it is that consumers like you and me stand to benefit the most from the innovation coming our way.
