Get to Know Open Banking and Open Finance in Indonesia

How people use and interact with their finances has been revolutionized by the rise of open banking. Open banking allows financial institutions to access, use, and share customers' banking information. By analyzing data from many different sources, financial service providers can now provide more custom-fit services for their customers.

While open banking involves financial institutions and third-party providers exchanging data and services, open finance covers your entire financial footprint. With your consent, fintech businesses that adopt open banking and open finance frameworks are able to access your financial data related to pensions, tax, and insurance.

Given its rich potential and tremendous benefits, it is no wonder that banks, financial institutions, and other consumer-facing businesses in Indonesia have started to adopt open finance and open banking solutions. Would you like to know more about open banking and open finance in Indonesia? Read here!

Getting to know open banking API

When people want to use a financial service for the first time, they usually have to provide their details, such as phone number, where they work, or monthly salary. The number and variety of data will increase as they use that financial service. For example, when people use an e-wallet to make payments, the system will record what kind of payment they make; is it for paying bills, shopping, or applying for a Paylater.

So many personal financial data are spread across financial systems, which can provide an incredible insight into what customers want regarding financial products and services. We need an innovation that allows us to access that data with customers' permission safely. This is where open banking comes into play, where financial service providers rely on API technology.

This system supports bank and consumer services integrated with third-party application services. Open banking API (application program interface) clears the way for open banking and open finance to share financial data, typically through a third-party-developed application. In simple terms, open banking is a system that provides access to user banking data for third-party services through API technology. The goal is to improve traditional banking systems and make the digital banking industry better for everyone.

So, it will not be possible to practice open banking without API because API works as instructions. APIs help software "speak" to other software, allowing a third party to access customer data from a bank. Consequently, it accelerates banks and other financial institutions on building more innovations as they have the access to learn what their customers need from the data that they got.

Open banking API can also simplify bank account verification. Users must fill out the existing form by including the bank account number they have and a valid debit or credit card number, then performs a verification process to check whether the bank account number listed matches the one in the national bank database and creates a personal identification number (PIN) to use the open banking APIs service.

Bank Indonesia launches SNAP

Bank Indonesia (BI) has launched the National Payment Open API Standard or Standar Nasional Open API Pembayaran (SNAP), a central bank standardization of a set of protocols and instructions that facilitates open interconnection between applications in processing payment transactions. Before the launch of SNAP, open API systems or banking platforms that could be accessed by fintech were still fragmented because there was no standardization yet. This made the integration between banking and fintech, including e-commerce, still limited.

Besides encouraging integration, interconnection, and interoperability, SNAP will also create efficiencies among open API providers. In addition, the standardization, which was launched on August 17th last year, will also encourage interlinks between banking and fintech and broader e-commerce. This standardization will reduce fragmentation, thereby accelerating financial digitization in Indonesia.

The launch of SNAP is also said to be in line with the two visions of the Indonesian Payment System Blueprint (BSPI) 2025, namely supporting banking products digitalization and ensuring interlinks between fintech and banks. Open API aims to create a large transaction volume, provide good service to consumers and create synergies to form a digital ecosystem. Not only technical and authentication security standards are standardized, but also in terms of data and governance.

A form of digitalization innovation strategy

SNAP is a form of fintechs digitalization innovation synergy towards advancing the national economy. As a form of digitalization innovation strategy, SNAP aims to create a healthy, competitive, and innovative payment system industry that can provide efficient, secure, and reliable payment system services to the public. Through a national working group, SNAP was put together by the Indonesia Payment System Association (ASPI).

The implementation of SNAP will promote the innovation of banking services while accelerating the national economic recovery. BI took the initiative to reform the digitalization outlook towards Indonesia Maju (Onward Indonesia).

The expected outcome

Here’s the expected outcome of SNAP’S implementation:

1. To create a healthy, competitive, and innovative payment system industry

SNAP’s implementation aims to create a healthy, competitive, and innovative payment system industry. SNAP helps to provide payment system services that are efficient, safe, and reliable between banks and fintech, fintech and e-commerce, banks and e-commerce, and all parties involved.

2. A step to accelerating open API

Implementing SNAP is one of the crucial stages in accelerating open API in the payment system area. It will be carried out in stages with initial priorities for 16 industry players involved in program preparation with BI.

3. Used by industry players

For payment services that are not involved in the preparation of SNAP but have developed open APIs, implementation of SNAP for payment is mandatory in December 2022. Meanwhile, service users from small businesses and non-profit sectors are given the opportunity for integration no later than June 2025.

4. Guarantee technical and security standards

The implementation of SNAP will guarantee technical and security standards, such as data leakage issues, cyber attacks, and the protection of personal data. Through SNAP, Bank Indonesia performs standardization so that security, data standardization, technical specifications, and governance are standardized.

5. Reduce industry fragmentation

SNAP’s implementation is one of the means to reform the digital landscape for Indonesia as it will reduce industry fragmentation and also driving innovation. It is also an effort amid uncertainty due to the COVID-19 pandemic to push for economic recovery. Indonesia is slowly but surely taking a step toward sustainable economic development.

Open finance and open banking can make customers in Indonesia have more control over their personal financial data. At the same time, businesses can utilize that data to create innovative products and give more options for financial management products. To use financial data to develop innovative products and provide more choices of financial products to customers, fintech companies can work together with a trusted and experienced open banking service provider like Ayoconnect.

Ayoconnect, established in 2016, has connected more than 1000 companies in Indonesia to a centralized Open API ecosystem that integrates online and offline retail business with financial service providers. Find out more about Ayoconnect here!

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