#1Open Banking: How to Design for Financial Inclusion OCT FINANCIAL INCLUSION WEEK 2020 13-16 CFI Financial Inclusion Week Ariadne Plaitakis 14 October 2020 ⑧CGAP#2Speaker ⑧CGAP Ariadne Plaitakis Senior Financial Sector Specialist [email protected] CC BY#3CGAP What is Open Banking? Teaser: it is not fully open, and it is not only about banking#4CGAP definition of an Open Banking Regime 5/6 Public sector driven or supported regulatory framework for data sharing Sharing of customer transactional data by certain financial sector players ("data holders") with other financial sector stakeholders ("data users") Sharing is upon customer consent and usually data users are accredited CGAP Source: CGAP, based on a landscape study of 12+ regimes CC BY 4#5Open Banking is a journey towards Open Data % Open Banking Open Finance Open Data CGAP Open APIs CC O BY 5#6CGAP Why Open Banking? Two main reasons#7Reason No.1: Open Banking fosters competition • Addresses data silos and . ● informational asymmetry between traditional banks and other financial service providers Leads to the entry of more players, increases financial services offerings in number and diversity, and lowers prices Expands the pie for banks too. CGAP Image source: pinnacle.com N KNOWLEDGE CC O BY 7#8Reason No. 2: Open Banking empowers customers Data users' access to transaction data allows customers to: Have a consolidated view of their data Access tailored products that are more suitable to their needs Make more informed financial choices, often resulting in significant savings 鱼 CUSTOMERS Dolj L Open banking - control your finances CGAP Source image: castelightfinancial.com CC BY 8#9Open Banking, if properly designed, can also empower the poor Create products with improved value for underbanked Competition leads to lower prices & more affordability New OB entities view unbanked/underbanked as profitable resulting in: an increase in the customer pie; and incentivizing innovation by other stakeholders (ex. incumbents) CGAP ΠΟΛΩΛΟΛΟ CC O BY 9#10Open Banking products help overcome typical challenges faced by the poor M Volatile and irregular income Savings trackers and automatic saving sweepers 000 88° {{ No access or inappropriate credit product Lack of control over budget and funds High tariffs for household bills (poverty premium) Lack of ID to access financial services ⑧CGAP Increase access to credit through alternative data Personal finance management Utility switching and personal finance management tools Collaborative approach to CDD CC O BY 10#11Key functionality: Payment initiation ⑧CGAP Source image € CC O BY 11#12Open Banking products can assist even feature phone users Many of the open-banking enabled products make use of the data only on the back end - ex. automatic savings sweeping, smart loan repayment and decentralised KYC Others are usable through a series of SMS/ USSD menu, even if not full functionality - ex. switiching utilities, budgeting apps CGAP 0000 0000 (8) CC 12 OE BY#13CGAP Open Banking: How To? Twelve design components#14There are 12 design components for an Open Banking Regime Scope 1. Types of services 2. Participants 3. Types of data 4. Payment initiation Implementation 5. Lead regulator/policy mandate 6. Mandatory vs voluntary 7. Technical specifications for data sharing 8. Staged implementation 9. Data privacy and portability 10. Liability and consumer protection 11. Cost distribution for the data requests 12. Governance Of those, 5 are key to a "Financial Inclusion by Design" ⑧CGAP Source: CGAP upcoming paper 14 CC BY#15"Financial Inclusion by Design": Comparision of Brazil's & UK's open banking choices Design Element Types of services Participants Types of data Payment initiation Cost distribution: data calls & infrastructure UCGAP UK Banking Mandatory 9 largest UK banks; no data reciprocity Product data, transaction data Yes Paid by 9 largest banks Brazil All services regulated by CB Mandatory Segment 1 and 2 Prudential Conglomerates and all authorized payment institutions; data reciprocity Product data, transaction data, customer registration data Yes Tiered pricing for calls, infrastructure by all participants, proportionate to MS CC O BY 15#16"Financial Inclusion by Design": Mapping key inclusive OB products to design components Product: Savings trackers/automatic sweepers PARTICIPANTS Banks, EMIs, PSPs, other FSPs CGAP TYPES OF DATA TYPES OF SERVICES PAYMENT INITIATION Customer transaction data Banking, payments Recurring payment initiation TM Meerkat™ digit COST CONSIDERATIONS Real time, continuous data calls </> 16 CC BY OE#17Discussion Please post any question using the chat box. CGAP For more, please visit: www.cgap.org Resources: cgap.org/blog/open-data-and-future-banking cgap.org/blog/open-banking-7-ways-data-sharing- can-advance-financial-inclusion#18CGAP Thank You! Stay connected with CGAP CGAP f in www.cgap.org @CGAP Facebook LinkedIn#19UCGAP Ministry of Foreign Affairs of the Netherlands JLIFAD Investing in rural people CREDIT SUISSE Global Affairs Canada AFD www.cgap.org Federal Ministry for Economic Cooperation and Development UDENRIGSMINISTERIET MINISTRY OF FOREIGN AFFAIRS OF DENMARK Ukaid from the British people Norad BILL& MELINDA GATES foundation Sida UN CDF CDC Investment works THE GOVERNMENT OF THE GRAND DUCHY OF LUXEMBOURG FMO Entrepreneurial Development Bank KOICA ccec Korea International Cooperation Agency Schweizerische Eidgenossenschaft Confederation suisse Confederazione Svizzera Confederaziun svizra Swiss Agency for Development and Cooperation SDC JOA JERSEY OVERSEAS AID USAID USAID FROM THE AMERICAN PEOPLE flourish IFC International Finance Corporation AGENZIA ITALIANA PER LA COOPERAZIONE ALLO SVILUPPO mastercard foundation IDB LAB UN DIP KFW MetLife Foundation Australian Government Department of Foreign Affairs and Trade giz THE WORLD BANK IBRD IDA WORLD BANK GROUP European Investment Bank npm platform for 00 Inclusive finance Ministry of Foreign Affairs and International Cuperation IFU INVESTMENT FUND FOR DEVELOPING COUNTRIES