Ryan Liew
Ryan Liew

Open banking - Why it is set to transform FX

Open Banking is seeing rising adoption especially among countries with strong digital and mobile payments uptake. We asked Ryan Liew, Business Development Consultant at Payment Asia, a leading e-payment technology and e-business management provider to tell us about how he thinks it might transform the FX market over the coming years.

Why is Open Banking becoming so popular around the world and what key advantages does it have?

The Open Banking idea presents advantages for 3 key stakeholders within the financial ecosystem:

  1. Customers - more choices and better banking experience. According to the Millennial Disruption Index, 71 per cent of young people would rather go to the dentist than listen to what their banks say. With Open Banking, it allows players within the industry to compete on a more equal footing. Healthy competition promotes innovation, better service and banking experience for the customer, making banking services faster, cheaper and better.
  2. Banks - growth opportunities and accelerate adoption of digital technologies. The Open Banking initiative requires banks to share customer’s data with third-party fintech applications but it is also an opportunity for banks to expand their product distribution channels beyond what they can do now. In the last decade, banks have been spending most resources on regulatory compliance while big tech firms like Google, WeChat and Amazon have captured the mindshare of the users. By co-creating with fintech companies, banks can accelerate digital transformation and recover the “lost decade”.
  3. Fintech companies - new markets with growing potential.The new regulation has invited competition for the banks, allowing fintech companies to build innovative applications and access to serve over 300 million customers in EU and UK. Without the burden of legacy systems, fintech companies are in prime position to capture the future of banking services using the latest technologies.

How is new legislation, for example PSD2 in Europe (the Second Payment Services Directive) acting as a catalyst for Open Banking?

PSD2 is the EU-version of Open Banking in the UK which allows customers to now compel banks to share their data with 3rd-party providers (TPPs) to make payments, obtain loans, compare prices etc. When we combine Open Banking and PSD2, TPPs can now build applications to pull that data from the bank’s database across EU and UK markets. This opens up a whole new world of exciting opportunities to build cutting-edge products and improve banking services, in line with customer expectations.

In what ways could the COVID-19 crisis have accelerated the drive towards Open Banking?

One of the silver linings of the global pandemic is unprecedented growth in the history of digital payments. Lockdowns have forced users to transact online and service providers to reposition their distribution strategy to online channels. These investments into digital channels will be here to stay post-Covid now that users have embraced online payments as the new normal.

FX is a global business with banks and brokers having customers in many different countries. In what ways can Open Banking help them to overcome the challenges of servicing their clients digitally across multiple jurisdictions?

Previously, banking has always been a “physical” affair where customers need to visit a bank’s branches for their banking needs. Once they go digital, banking services are no longer limited by the working hours or availability of bank tellers and branch locations. For example, a traveling UK person can make payments to his European vendor while transiting at Dubai airport or an FX investor living in Singapore can fund his foreign broker’s USD account at midnight via TPP’s mobile app.  When more countries adopt Open Banking, it enables banks to serve their global customers anytime, anywhere without boundaries at a fraction of the cost when compared to offline channels.   

Open Banking

How can Payment Asia’s Open Banking solution help FX trading providers to lower their payments costs, improve their cash flows and reduce fraud?

The Payment Asia Open Banking solution reduces transaction time between customers and FX trading providers to within seconds. Instant payment means instant cash settlement, shortening the cash cycle to intraday and improve overall cash management positions for the service provider. The Payment Asia solution is focused on instant bank transfer with biometric authentication. With debit and credit card payment methods, fraudulent activities are more rampant and are less popular in emerging markets when compared to bank transfers.

Relationships are very important in FX trading. In what way does Open Banking have the power to strengthen these? 

In the digital world, relationships are defined by how well you deliver your service faster and better than your competitors when they need you the most. Payment Asia’s Open Banking solution redefines the way we move money to within seconds at your fingertips. This is an extremely powerful proposition for FX trading because FX is a volatile and time-sensitive market. A minute’s delay in moving your funds into your trading account could result in lost trading opportunities. After putting the customer through the hoops of KYC, you do not want to lose the customer by introducing more friction when they deposit funds.

In what ways is new technology being integrated into Open Banking environments to put payment transaction data to work which can help FX trading providers gain more actionable insights from their client activity?

When transaction time is reduced to seconds, it will generate more actionable data for FX providers to respond immediately, for example:

  1. Are there any patterns that we can see from the transaction data that will enable FX service providers to offer new services, reduce fraud or further simplify the payment process?  
  2. How does a significant increase of deposits or withdrawals of funds impact FX trading provider’s operation?
  3. What can FX service providers do when they see a high abandonment rate?

The arrival of cryptocurrencies is a good example of how FX is a constantly evolving marketplace. What role could Open Banking play in helping to make this new asset class more transparent, secure and accessible?

The majority of cryptocurrency investors are digital natives and the payment process using Open Banking is something they are very familiar with. Open Banking will make adoption much easier for anyone new to cryptocurrencies and it is a perfect opportunity for service providers introducing e-payment technologies to early adopters.

Open Banking
A frictionless and instant payments experience goes a long way in winning and retaining customer loyalty

What factors might influence who FX market participants choose as their preferred Open Banking payment services providers?

The key differentiator boils down to UX, speed and security of the chosen platform. For example, how many clicks does it take to make a transfer or how long does the transfer take? From the provider’s perspective, how quickly will they receive the funds? Any potential fraud or chargeback risks? Does the solution lead to a higher sales conversion ratio and improved customer satisfaction?

In what ways do you think Open Banking will open up new opportunities in the future for FX providers to offer more innovative, value-added services that create more ‘stickiness’ with their clients?

87% of customers will abandon their transactions when they feel it is “complicated” or require too many steps. When there is a delay in deposits or withdrawals, more customers will complain, which results in poor customer reviews, brand erosion and additional burden for client support centres. 

Payment Asia’s Open Banking solution is designed with a mission to give users the best payments experience. We achieve that by setting an industry benchmark in reducing transaction time to within seconds, when others take minutes or hours. In our decades of experience serving the FX market, we understand that a minute’s delay will have a significant impact on the profitability of a trade due to market volatility.  Once users have experienced payments within seconds, you will see a significant improvement in customer satisfaction and reduction in abandonment rate.

Ultimately how can Open Banking deliver competitive advantages to the FX market participants who fully embrace it?

With Open Banking, regulators open up the financial industry to more competition and makes it easier for customers to switch from one provider to another. A frictionless and instant payments experience goes a long way in winning and retaining customer loyalty. When the FX market is moving in milliseconds, FX providers need to keep pace with technology and expectations of their customers to remain relevant. Service providers that fail to embrace Open Banking within the next 2-3 years are not just going to miss out on opportunities but are also unlikely to survive in the digital world.