Regulations are transforming digital banking- The Asian Banker - The Asian Banker
Sunday, 3 March 2024

Regulations are transforming digital banking

5 min read

By Sara Wang

Banks are moving away from the gloomy outlook that previously reigned in the financial world. In The Asian Banker Future of Finance “Risk and Regulation” conference, regulatory transformation, rise of blockchain technology and open banking collaborations were pointed out as the key factors in enhancing the banking industry

What has changed a decade after the global financial crisis? Except for the last phases of Basel III – a worldwide structure created to advance budgetary framework soundness – most post-emergency prudential arrangements have now become distinct. Banks, specifically, have come a long way. They are becoming all around promoted and increasingly fluid.

Regulators now see significant opportunities in developing new tools to manage risks and enhance the efficiency, safety and soundness of firms and markets. Therefore, their attention is turning from post-crisis reforms to a new set of emerging risks and priorities.

With this change, regulatory and supervisory policies are focusing on digital transformation of financial services, difficulties and hazards posed by technological development, fresh market participants and changing company models.

On the global stage, growth of emerging market players with their own priorities is an increasing factor. Fintech, on one hand, is seen more as an opportunity than a challenge in developing economies where applications of new technologies are evolving quickly and driven by new participants.


Blockchain revolutionising financial services industry

Concurrently, banks are demanding blockchain-related technology services. As this continues, more information is expected to put the blockchain technology to a level of great importance. Ang Xing Xian, CEO and co-founder of CapitalBay, stated that “blockchain technology is not a grey area of regulation. Instead, it can help solve problems and even coexist peacefully with regulation”. Countless banks can reap huge benefits from this. Cross-border transfers under blockchain technology can protect indiscriminate transactions. One bank can act as a transfer agent so that another bank can assist in faster and smoother transfers. The use of blockchain ensures that transactions are safe before the transfer, trading and establishment. In other words, it helps avoid the risk of fraud. The bank will also be notified on the spot if the transaction is not established.

“On average, general cross-border transactions take three to five days with 4% chance of failure, which can hurt customers, especially multinational e-commerce, for which new technology applications are like blockchains. Or the cloud, which will greatly improve work efficiency in banks,” Munindra Verma, group president and head of the transaction banking product management of Yes Bank, stated. With the help of blockchain technology, financial institutions can immediately discuss transaction details and complete transactions that can help them save significant transaction costs.

Verma added how blockchain technology helped India build a first-rate trading platform. He said, “Last year, Yes Bank partnered with Ripple to help make its remittances in North America, the Middle East and the UK smoother. As the blockchain is more developed, I think its function will be more powerful and with more applications in the future”.

Traditional financing has many shortcomings, although it can be gradually overcome with blockchain financing working well to control the flow of funds, hold cash and increase the growth opportunities of banks.The digital age requires strong technology, and it is important for financial institutions, especially small and medium-sized enterprises, to take advantage of blockchain to ensure their liquidity. Banks need to embrace cooperation to strengthen their competitive advantage

While there is a massive growth in the number of available open banking products around the globe, this is only the tip of the iceberg. New regulations will stimulate more activity as banks shift towards an open banking landscape. To date, open banking players remain amongst a select group of banks. Globally, for new players, there is room to enter and take a leadership position. Banks creating open banking platforms, however, face a huge challenge. They need to get their internal processes and architecture aligned first so they can future-proof their organisation and participate effectively in an application programming interface (API) driven economy.

Axel Winter, chief technology officer of Central Group, raised concern on what banks really need to focus on when it comes to API sharing. “When developing API-related scenarios, you should not just think of it as a four- to five-year plan, but also think about how to promote the technology and strengthen the application in the future,” he said.

Winter highlighted that banks can ask their API customers on what they want through questionnaires so that products can be designed according to customers’ needs. According to Mayda Lim, head of technology of ANZ in China, APIs are designed to improve the customer experience and help banks achieve data sharing. Banks can work with third-party institutions through open finance to amend their existing products. Ayden Ferdeline, tech policy fellow from Mozilla Foundation agreed, saying “Banks can do more, banks can try to provide more accurate, more powerful APIs”.

The market is changing rapidly and advances in technology are unimaginable. In Europe, where APIs are used in 27 countries and banks are open to each other, this open service platform is a great convenience for customers.

It is, however, not very well developed elsewhere. Looking at regional differences to know how they can promote well is an idea worth exploring. 

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