When DBS connected its systems to Xero back in 2017, it was a pioneer in open APIs. Now, this month, OCBC is slated to go live, joining UOB and HSBC to offer direct bank feeds to their SMEs, says Kevin Fitzgerald, Xero’s Asian director in Singapore; another leading bank in Hong Kong should go live this spring.
Although it seems Xero, an accounting-software platform, is gaining momentum, these business wins are actually a sign of how slowly the region’s banks have been to embrace open banking.
Xero has 180 banks connected in Australia, Europe and other places. The company has been operating from New Zealand for 12 years now, providing cloud-based accounting services to small businesses that can’t afford an in-house accountant. It now has 1.6 million users worldwide.
Until recently, Asian customers had to manually enter information from their bank account statements. It’s a huge drain on businesses: “If you own a café, and you sell a thousand cups of coffee in one day, are you going to have time to type every transaction into your account?” Fitzgerald said.
Open API has transformed this, by allowing customers to automate this and get their data piped into Xero directly from their banks.
While the rest of the world’s banks have raced ahead to make this possible for their customers, vision in Asia has been lacking in general when it comes to fintech and open banking. But for the handful of leaders, the results are immediate.
Since DBS connected, for example, its merchants’ transactions can be downloaded into their Xero accounts automatically every 7a.m. That ends up saving small business managers up to 16 hours of time each month, Xero claims.
That creates a competitive problem for banks that haven’t jumped on the open-API train. “Imagine you have three banks, two are linked, one is not. You have to type all info for this bank, what will you do?” said Fitzgerald, suggesting that banks unable to match that kind of convenience risk losing business.
Now, with another eight banks in Asia in Xero’s pipeline, the competitive pressures of open APIs are finally beginning to force banks to act.
Faster and safer loan business
Business owners enjoy the convenience; for banks, there are direct benefits too—lending quickly, at lower risk.
If a small company wants to borrow to, say, expand its café, it would normally take it a few weeks to prepare for an application –and another few weeks for banks to review it. The administrative and compliance costs to the bank make such activities unprofitable, so increasingly, banks
have simply refused to lend to many SMEs.
But by accessing bank data, Xero can help SMEs prepare an application in just one day, Fitzgerald said.
Most important, because Xero is using the same customer information sent through API from the bank, the compliance gap is closed. Banks don’t need to worry about the authenticity of the customers’ financial records.
NAB, for example, has developed a loan producton the back of Xero in which SMEs with 12 months of financial data on Xero can apply for an unsecured business loan of up to A$100,000 (US$72,000) with instant approval.
To reach this point required a mental shift among banks, which traditionally have resisted sharing customer data with third parties. But now banks see this as a competitive necessity.
“We connect to Xero to remove frictions and therefore to serve customers better, in longer term, so they will bank with DBS.” said Ng Peng Khim, head of technology for the investment banking group.
DBS also let Xero users make payments directly from their accounting platform, rather than have to use DBS’s website, by sharing API on payments, Ng says.
Fluency VS transparency
As more banks open their data, customers such as business owners will be increasingly able to consolidate banking accounts and different financial services on one platform. To date, only large corporations can do this, via SWIFT, the bank-owned utility for cross-border payments.
But with convenience comes transparency. Tax avoidance will become more difficult. Open APIs for accounts will lead to an end-to-end journey for income taxes, for both companies and individuals. Governments are starting to realize the potential for open APIs to help them raise revenues: the U.K., for example, has a “making tax digital” initiative starting this April.
These benefits are also setting the stage for tomorrow’s disputes. Under open-API regimes, such as those in Europe, the U.K. and Australia, it is the customer who owns their data. A bank, fintech or
corporate can only request data with that customer’s consent. But how a customer can really control his own data remains unclear.
Then it’s up to banks and companies such as Xero to ensure the data is handled appropriately, and up to customers to safeguard their banking passwords.
“I associate your Xero account with your I.D. in the bank,” said DBS’s Ng. He said the bank must be able to verify any Xero customer that wants to access a DBS account.
DBS also encrypts the banking statements sent to Xero, but customers need to realize that once they make a request on Xero to connect to their bank, the flow of information won’t stop unless the customer orders it.
Fitzgerald said that Xero would not be able to access the encrypted data once the customer cancelled the request or quit the service.