Open banking has transformed financial landscapes in countries like the UK, driving competition, innovation, and better customer experiences. However, in Malaysia, open banking has yet to gain significant traction.
This article critically evaluates why open banking hasn't taken off in Malaysia, comparing it with the UK's success and exploring the regulatory and market dynamics that hinder its progress.
Regulatory Barriers
One of the main reasons for the slow adoption of open banking in Malaysia is the regulatory environment. In the UK, the Competition and Markets Authority (CMA) mandated open banking regulations, compelling major banks to share data with third parties. This initiative aimed to enhance competition and consumer choice.
In Malaysia, Bank Negara Malaysia (BNM) has been more conservative. While BNM has shown interest in digital banking and fintech, it has not enforced regulations specifically promoting open banking. Without regulatory mandates, traditional banks have little incentive to open their data, stifling innovation. Concerns about data privacy, security, and the readiness of the financial infrastructure contribute to BNM's cautious approach.
Attempts at Open Banking
Despite the regulatory challenges, there have been attempts to foster open banking in Malaysia. For example, some banks have started to explore open API initiatives.
CIMB Bank introduced its CIMB Open API program, allowing developers to create innovative financial solutions by accessing banking data. However, these efforts remain fragmented and lack the comprehensive support seen in markets like the UK.
Intense Competition Among Banks
Malaysia's banking sector is highly competitive, with major banks fiercely protecting their market share. This competitive landscape discourages the collaboration needed for successful open banking. In the UK, open banking was supported by a consortium of banks working together to develop standardized APIs and frameworks.
Malaysian banks, however, are more focused on safeguarding their customer base. The fear of losing competitive advantage by sharing customer data with fintech firms or other banks outweighs the potential benefits of open banking. This competitive mindset is a significant barrier to the collaborative spirit required for open banking to thrive.
Control by the Wealthy Elite
Another unspoken factor is the control of major banks by wealthy elites in Malaysia. These stakeholders have a vested interest in maintaining the status quo. Open banking poses a threat to their control by potentially allowing smaller banks and fintech companies to enter the market and attract customers with innovative solutions. The entrenched interests of these elites, who prioritize their business interests over market innovation and consumer benefits, further hinder the adoption of open banking.
Comparisons with Singapore and Thailand
In contrast to Malaysia, countries like Singapore and Thailand have made more progress with open banking. Singapore's Monetary Authority of Singapore (MAS) has been proactive in fostering a fintech-friendly environment, promoting API standards and encouraging data sharing. This regulatory support has led to a thriving fintech ecosystem with widespread open banking adoption.
Similarly, Thailand's Bank of Thailand (BOT) has introduced initiatives to promote open banking, including regulatory frameworks and sandbox programs to test new financial technologies. These efforts have positioned Thailand as a regional leader in fintech innovation.
Final Thoughts
As a former student in the UK, I have witnessed firsthand the success of open banking and wish it were more prevalent in Malaysia. Open banking drives competition and innovation, leading to better services and products for consumers. This is particularly important in Malaysia, where I am a fan of competition and believe that it can significantly improve the financial landscape.
Bank Negara Malaysia has made some innovative strides, such as granting digital banking licenses and allowing new digital banks like GXBank, Aeon Bank, and Boost Bank to operate.
However, these efforts pale in comparison to the technology, convenience, and practicality offered by UK digital banks such as Monzo and Starling. The comprehensive regulatory framework and collaborative environment in the UK have created a fertile ground for open banking, resulting in a vibrant ecosystem of digital financial services.
For open banking to take off in Malaysia, there needs to be a concerted effort from regulators, banks, and consumers. Bank Negara Malaysia must create a regulatory framework that encourages data sharing while ensuring data privacy and security. Banks need to shift their mindset from competition to collaboration, recognizing that open banking can lead to a more innovative and customer-centric financial ecosystem. Finally, raising consumer awareness about the benefits of open banking will create demand and pressure banks to adopt more open practices.
With the right regulatory and market dynamics, open banking could transform Malaysia's financial landscape, much like it has in the UK and other progressive markets in the region.
