"Open API Leading To Open Banking"

Mr. Redwan-ul Karim Ansari is an innovation-driven entrepreneur with a diversified portfolio. His career started as a practitioner of law. At the same time, he worked in the family businesses to enhance his acumen in the field of international trade, negotiations and compliance. He has always been an avid visionary when it came to Information Technology and has developed practices around financial technology and open banking services. Currently, he has shifted his career more towards multiple business portfolios where he holds diversified positions such as Founder and CEO in some of the highest ranking companies in production and innovation.

Mr. Ansari is a lifetime member of the prestigious Lincoln’s Inn society which is one of the four Inns of Court in the UK. He is also an active member of BASIS (Bangladesh Association of Software & Information Services) and BCS (Bangladesh Computer Samity).

You mentioned Digital Transformation or Open Banking is a “Mindset”. Could you explain why?

Digital Banking, neo banking, digital wallet, and personal-finance- management, are entirely new forms of doing financial services or offering financial services. What used to be a fully bank-driven model is now changing. Fintechs are approaching financial services models at various points and are focusing on solving the banking problems cheaper and at scale. Open banking is a platform technology where data sharing between banks or financial institutions with other fintech or third parties occurs via a ‘Consent’ modality. Banks have never operated from that perspective in Bangladesh before. Recently, with the advent of fintech, nowadays banks are thinking of sharing data with third parties/Fintechs. According to the law, the data belongs to the ultimate beneficiary, the customer. And the bank is a custodian of the data and the money they store with these institutions.

In the past, Banks would refer to the customer’s data as their data and did not contemplate sharing that data with other third parties. Now they realize – This notion is WRONG. This is where the mindset comes in. We will have to understand and accept that the data does not belong to the Banks rather it is the customer’s data and the customer has a complete right to it. Article 23 of the constitution establishes a citizen’s right to data, the right to access information or knowledge. If that right is enforceable, and the banks silo their system and keep it closed, they are technically against the constitution, which is not legally viable.

Banks can monetise the API they expose to share data to offset the cost incurred but the fact remains that they have to create these standardised APIs and be compliant. Furthermore, should the customer want to access their data, banks will have to give the customer that option.

Consent in open banking is perhaps the most integral pillar to initiating data exchange. The customer has to provide consent and the customer has to retain control over that consent. The consent cannot be perpetual either. Customers have to have full control over revoking the consent that they might have provided. It has to be an independent platform that customers can access directly.

For example, when we go for a visa, a bank statement is required. Open banking can work in this situation. Where the customer data can be pulled directly by the embassy, of course taking consent from the account holder. The process will be much faster and manual verification is not required. If someone wants a credit card bank statements would be needed to be validated. Unfortunately, what we see today, is that you need to go to the bank and ask for a statement. They will sign and seal this and charge an amount as a service charge then we have to collect this and then have to give it to the embassy or the requesting bank physically. Then, the embassy or bank also engages someone to verify this, which is a lot of manual process, and time-consuming. Just a simple API can turn this complicated task into a cost and time-saving “couple of clicks job”. Finally, this Change of MINDSET can facilitate Banks, Insurance companies, NBFIs, Government and YOU.

You yourself is a board member of a bank. What have you done in your Bank?

Again the MINDSET! Yes, we are trying to change the cognitive response, but unfortunately the older generation of the Board Members and Senior Management need to be educated on these matters and guided to trust this new reality.

What is Circle FinTech?

Circle FinTech is an Open Banking Enabler and Payment Orchestration Platform. We are the first of its kind in Bangladesh. We have been in operation for the last three years and to my knowledge, we are the only ones operating in this discipline. We have 2 primary Modus Operandi, Open Banking under the brand name Connect and Aūrthó for Payments Orchestration.

Connect is an Open Banking Platform that focuses on helping banks and FI achieve this concept rapidly so that they can leverage the huge potential and create new forms of revenue and value addition for their portfolio. We also engage with them to create end-to-end digital banking products and enable them to extend their products onto this new value distribution channel which is cheaper, faster and more secure. Once the API has been consumed and standardised, they are made publish-ready for 3rd parties to access and build a new generation of FinTech products and services.

Under Aūrthó, we deal with enabling account-to-account transactions, new alternative forms of payment, solving cash lifting and the creation of an interoperable net of already deployed touchpoints by working with different strategic partners. We look at payments for what it is, an exchange of money between parties, we focus on payments from a market-driven point.

We seek to enable all stakeholders in the payments cycle. Consumer, Retailer, Wholesaler, Distributor and Manufacturer. We want to create a payment environment where coverage can be provided from the smallest ticket to the biggest. When a shop pays to its supplier, the ticket size never falls below Tk 15,000-20,000 and if it’s a retailer, the payment is above 1 lac. When a wholesaler is paying to the distributor, its size is much more and when that payment flows from distributor to manufacturer, it may reach crores. While smaller tickets may be covered by MFS/wallets/banks however large ticket transactions would most definitely be executed via Banks. With Aūrthó we seek to enable the whole payment cycle and make it cheaper, traceable and fast. With Aūrthó we envision creating an open payments backbone that all payment participants can leverage.

What is Open Banking/API?

Open Banking requires the core belief that the customer data that is held by institutions are held in custody on behalf of the ultimate beneﬁciary that is the customer. The Customer should have complete freedom to access and share the data with any other authorized 3rd party that he/she wishes. The service provider has to take any steps to ensure this requirement is strictly adhered to.

It is an exchange of data in a secure consent-based sharing of customer banking data through third-party providers and non-bank products. Using application programming interface (API) technology, banks and third-party providers can enable convenient and secure sharing of data, that can unlock new use cases for payment initiation, customer account information, account opening via third parties and more.

Open banking is a driving force of innovation in the banking industry. By relying on networks instead of centralization, open banking can help ﬁnancial services customers securely share their ﬁnancial data with other ﬁnancial institutions. For example, open banking APIs can facilitate the sometimes onerous process of switching from using one bank’s CASA account service to another bank’s. The API can also look at consumers’ transaction data to identify the best ﬁnancial products and services for them, such as a new CASA that would earn a higher interest rate than the current savings account or a different credit card with a lower interest rate.

Through the use of networked accounts, open banking could help lenders get a more accurate picture of a consumer’s ﬁnancial situation and risk level to o er more proﬁtable loan terms. It could also help consumers get a more accurate picture of their ﬁnances before taking on debt. An open banking app for customers who want to buy a home could automatically calculate what customers can afford based on all the information in their accounts, perhaps providing a more reliable picture than mortgage lending guidelines currently provide. Open banking can also help small businesses save time through online accounting and help fraud detection companies better monitor customer accounts and identify problems sooner.

What does it mean for the Financial Markets in Bangladesh?

Account to Account (A2A) payment

With a new spectrum of possibilities opening up in a world where all banks are connected to all retailers and all consumers all of the time, the 1960s four-party party may be over. One speciﬁc gatecrasher is account-to-account (A2A) payments. These are payments that shift money from the payer’s bank account to the payee’s bank account through the instant payment networks that are springing up around the world. These are inexpensive, push-only credit transfers that complete (for consumers and businesses) in seconds whether the underlying settlement networks are real-time (as in Australia) or net (as in the UK).

A good example of a well-established A2A scheme is iDEAL in The Netherlands. The ﬁrst billion iDEAL payments were recorded in mid-2016, a decade after the launch of the scheme. The second billion iDEAL payments were recorded just two years later, at the end of 2018. The latest ﬁgures show that iDEAL is running at more than a billion transactions per annum and will hit ﬁve billion transactions at the start of 2022. More than two-thirds of Dutch e-commerce payments are made using iDEAL. iDEAL ǪR codes are now a common sight on invoices, in stores and on screens.

The British market seems set to shift in a similar direction. More than half of all business-to-business payments are already made through instant payments (volumes rose more than a ﬁfth last year) and the consumer-to-business, consumer-to-government use is starting to grow as well.

The Payment System Regulator (PSR) recently published a report on the UK cards market. It says that the cost to businesses of processing card payments is “greater than it should be”, and it is too di cult for those businesses to switch between intermediaries that link them into card payment systems. The regulator also identiﬁed a lack of transparency around prices, and that the nature of many acquirer and point-of-sale (POS) terminal contracts discourage merchants from switching providers. More than half of UK consumers (and more than two-thirds of mobile banking users) would be willing to pay A2A via open banking if presented with that choice. A third of consumers said that a trusted brand would encourage them to use A2A instead of cards (double those who said they could be incentivised through loyalty schemes, which I frankly doubt), especially since 42% of UK consumers said they would pay for groceries this way and 39% said the same for ﬂights and holidays. Interestingly, 44% say they would pay the government this way.

The A2A Trend

Payments giant Worldline has ﬂagged the shift to A2A as one of its “megatrends” for the coming year. In Europe, where the PSD2 push to payment initiation services through open banking APIs is gathering steam, they predict A2A reaching 10% penetration within ﬁve years (this may be an underestimate if retailers begin to tender-steer with incentives).

Account-based payments are very attractive to the retailers because of lower costs and faster, an irrevocable settlement that remove the need for the payment guarantee central to the card network proposition.

Similarly, the new Capgemini World Payments Report says that A2A transactions enabled through open banking are a “pressure point” on bank payment strategies and according to the management consultants McKinsey, instant payments are playing an “increasingly important role” in the global payments ecosystem, with transactions up by 41 per cent last year alone (often in support of contactless/wallets and e-commerce). PwC calls attention to what they call the parallel trends of evolution in the payment systems (eg, A2A instant payments) and structural change in the payments ecosystems (crypto currencies and central bank digital currencies).

Open banking-initiated payments o er businesses something new. The move towards Variable Recurring Payments(VRPs) in the UK. VRPs allow customers to safely connect authorized third parties to their bank account so that they can make payments on the customer’s behalf (within agreed parameters). As well as VRP, request-to-pay (R2P) schemes are under development in the UK and Europe. PayUK estimates that an R2P service could save the UK economy in the region of £1.3bn each year, by providing a lower cost, secure alternative to cards, “traditional” invoice payments and direct debits.

This means that change is coming. Anders la Cour, the CEO of Banking Circle, says that R2P is one of the alternative payment mechanisms that “could revolutionize the way payments are done” in Europe.

(One useful way to think about these alternatives to cards is by the time of authentication. In other words, R2P is the “customer is present” payment mechanism whereas VRP is the “customer was present” payment mechanism.)

Account Opening via 3rd party provider

In a traditional banking setting, ﬁnancial institutions (or banks) are directly connected to their end-users. They provide services such as account information, execute payments between accounts, lend money, and collect money. Bank users complete one or more of the above services by requesting them directly from a ﬁnancial institution. This happened via internet banking applications, mobile banking applications, or by users physically being at the bank. We can depict this scenario as below.

In the above scenario, bank users connect to the public interface of a ﬁnancial institution to achieve a task. If there are several such institutions, users are required to identify the di erent public interfaces to connect with all these.

The responsibility of a third party is to act as an intermediary between the bank user and the bank. In other words, the third party provides a secondary public interface with which the end-consumer interacts. With this third party in the picture, users can request a service from the third party. In this case, the user is not required to know the public interface of the bank.

All these are taken care of by the third party. Consumers need to provide consent to this third party to perform a task on the ﬁnancial institution on behalf of them.

The main problem with this approach is that third parties have to discover and integrate with the di erent ﬁnancial institutions in a heterogeneous manner since there is no standardization. This is when open banking comes into the picture.

With open banking, ﬁnancial institutions are supposed to expose their public interface in a uniﬁed standard manner. This allows easy integration for third parties and this attracts new ﬁntech organizations to the ﬁnancial domain as “Third Party Providers”. Fintechs such as Tink, Yodlee, and Plaid are becoming well-established, successful third parties in the open banking domain. Applications such as Kalgera (a personal ﬁnance management application), MoneyBox (an application that encourages saving spare money), and Mojo(an online mortgage broker) are some good examples of innovative consumer applications that are built on top of open banking services. With these innovations, some of these companies are now getting attention from fortune 500 companies to build better applications.

Open banking speciﬁcations in various regions have di erent terms for this intermediary party. As an example, the Open Banking Standard in the UK and the Berlin Group NextGenPSD2 speciﬁcation identify this intermediary agent as a “Third Party Provider” (TPP). Consumer Data Standards from the Australian region identify this intermediary agent as a Data Recipient. Similarly, various regions have di erent names for this agent.

In the UK, initially, the ﬁnancial institutions resisted TPPs labelling them as competition However, as it turned out, TPP were far more adept in consolidating these services and is proven to be a bigger ally to extending banking to the masses. It is noted that the custodian of the accounts are always the ﬁnancial institutions and their e ort remains the domain of their marketing activities. Financial institutions are in a better position to place themselves to diligent services as they are.

Personal Finance Management

Personal ﬁnance management (PFM) broadly covers money management for retail customers across 4 main categories: Assets, Debt, Income, and Expenses.

At present most stand-alone PFM apps or PFM features within broader apps (like mobile banking apps-wallet sets etc.) mainly o er budgeting and savings features, covering the Income and Expenses categories. With the growing trend of customers (especially millennials and Gen Z) owning multiple bank accounts, Open APIs can make it very e cient for customers to get a fuller picture of their ﬁnancial health and work towards certain saving goals.

PFM ﬂow using Open APIs

Step 1

The PFM app requests the user to connect their bank account(s). PFM apps can do it themselves by linking to banks via APIs or connecting via account aggregators. Once the user is presented with a list of banks, they can choose the banks they want to connect to.

Step 2

Once the bank has been selected, the PFM app (or the account aggregator) asks the user for explicit consent to retrieve the data. The consent page may include details like:

The data that will be retrieved from the bank
The name of the entity requesting the data, in this case, the name of the PFM app
Duration of data access
Purpose of retrieving the data

Step 3

Once the user provides consent, the technical connection will be established between the banks and the PFM app via Open APIs.

Step 4

The user then authenticates themselves to establish their ownership of the bank account. This can be done by OTP sent to a registered phone number, FaceID/ ﬁngerprint attached to a mobile banking app or a secure link sent to a registered email address.

Step 5

The user then selects the accounts associated with the bank they connected to the PFM app.

Step 6

The PFM receives authorisation from the bank to enable data retrieval for the duration of time mentioned on the consent page.

Step 7

The user is redirected to the app that shows

Summary of the accounts selected
List of all the transactions across the selected accounts
Some categorisation of the transactions
Insights and analysis into spending i.e. 60% of outgoing transactions are for subscriptions

With the seamless stream of data made available with Open APIs, PFM apps can o er other tools that enhance the money management experience of the customer: Multi-account dashboards to centralise and consolidate data from multiple accounts

Auto savings feature that gamiﬁes saving habits based on personalized spending behavior

Robo advisors advisee or automatically puts money in investment based on user’s saving goals

Digital Lending

Digital lending has signiﬁcant advantages over traditional lending, with the potential to address prevalent credit-related challenges in Bangladesh. One of the most distinguishable advantages of digital lending is the speedier approval of credit. Credit evaluations and loan disbursals on digital platforms have visibly quicker turnaround times than traditional loans – particularly for small-ticket credits and advances, which are most common among.

new-to-credit borrowers. Some of the factors why the disbursal turnaround time is signiﬁcantly lower in digital lending are the replacement of manual form ﬁling with digital data captures, automated evaluations leveraging technologies like advanced analytics, artiﬁcial intelligence (AI) and machine learning (ML) and no or little in-person visits.

Traditional credit scores consider repayment records, delinquency, and data related to delay and default on outstanding loans to determine a credit score. This results in a majority of creditworthy thin-ﬁle individuals and businesses being unable to access credit. The usage of alternative data rather than traditional asset-based data to determine the creditworthiness of an individual/business is the underpinning advantage of FinTech lenders over traditional lenders. The shift from asset-based data to cash ﬂow-based data and other surrogate data from sources such as telecom, utility and social media, combined with psychometric analysis to evaluate the ability and willingness to pay, is augmenting or substituting traditional sources to service credit-invisible strata. Conceivably, another key advantage associated with digital alternative lending models is the operating cost e ciency. Traditional lending models, usually, have high overhead costs, surfacing from deeply entrenched manual processes.

Fintechs in di erent markets is responding to this market opportunity by capitalizing upon the needs and pain points of the consumers across the lending value chain for uncomplicated

on-boarding/ KYC processes, prompt decision making and instant disbursals. Some of the factors why the disbursal turnaround time is signiﬁcantly lower in digital lending are the replacement of manual form ﬁling with digital data captures, automated evaluations leveraging technologies like advanced analytics, artiﬁcial intelligence (AI) and machine learning (ML) and no or little in-person visits. Another key feature of the modern digital lending platforms is Customized credit assessment models, which employ behavioural data to identify typical attributes for charging interest rates.

FinTech lending models also thrived in the di erent Asian markets and ﬁntech that lends conversely does not require physical branch networks, is asset-light and has technology-enabled operating and business models which require minimal human intervention, thus reducing manual operating costs. This model allows FinTech lenders to keep ﬁxed costs nominal and aggregate a multitude of low-value loans, which enables them to serve low-ticket credit individuals in semi-urban and rural areas and previously credit-devoid MSMEs. Furthermore, Fintech lenders are also able to pass on the beneﬁts of lower costs to customers, making their digital lending products more attractive.

The key beneﬁts of Digital Lending are –

Easier loan disbursement:

The digital lending platforms used for the loan disbursal process have minimized the geographical barriers allowing borrowers to quickly take up loan applications. They come with easy data entry, a personalized user experience, and smooth loan application procedures.

Easy to capture applicant detail

With digital lending, the chances of human errors are minimal as it is easier to capture an applicant’s details. The validity of documents can be scanned digitally making the process quicker and error-free.

Guarantees quick decision making

Digital lending facilitates instant loans which is an advantage for applicants. By accepting digital automation lenders can hasten the application approval procedure with automatic decision-making. They can quickly view the applicant’s credentials and documents through the veriﬁcation and decision process.

Increases e ciency

A digital lending platform can cut down overheads by half and increase e ciency at the same time. Digital lending saves time, boosts revenue, and growth and improves lender-borrower relationships.

Better lending consistency

There are no irregularities in underwriting decisions with digital lending. It also guarantees great consistency in lending decisions o ering an easy application process, rapid decision making, and an adaptable lending process. Digital lending technologies make the entire process quick and allow lenders to revert quickly to the applications.

Better customer experience

Digital lending has a quick turnaround time, is transparent, and relieves applicants from the long waiting period for a credit decision. It is convenient and saves customers time. For banks, it also reduces the cost of managing loans and reduces time spent on underwriting loans.

Hence, banks can process more loans and products and o er a better experience to borrowers with quick loan approval and funds.