[SINGAPORE] Local banks’ restrictions on small and medium-sized enterprises’ (SME) access to their customers’ financial data are hampering API access and holding back growth in financial services for these companies, according to a report by think tank Fintech Nation.
API refers to application programming interface, a protocol that allows for two different software programs to talk and exchange data.
Currently, the major banks in Singapore selectively grant API access to certain platforms. Only one SME accounting platform, Xero, has managed to be publicly listed across the three local banks.
The restrictions also apply to the Credit Bureau in Singapore, where fintechs are unable to access credit information on their own customers.
This makes fintechs such as alternative SME lenders and even corporate secretaries resort to manually processing spreadsheets and pdf documents from their customers rather than pulling the data from the customers’ banks.
The lack of access could be seen as running counter to the Monetary Authority of Singapore’s Financial Services Industry Transformation Map, which aims to create a more efficient financial sector. There have been consequences to these restrictions in API access. At least six alternative SME lenders have exited Singapore, including Invoice Interchange and Capital Match.
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Validus’ sale of its Singapore SME lending business also underscores the challenges these lenders face in getting access to their own customers’ financial information.
“If (API access) exists and it is being given to somebody, then other companies should have fair and equitable access to the API – what happens is the larger company can do a deal at a preferential term, but the smaller one cannot,” said a spokesperson for Fintech Nation.
The think tank says that the issue is not one of customer consent. These SME customers have already consented to giving access to their financial data from their banks for onboarding or credit decisions.
The report also profiles two case studies in alternative SME lender Funding Societies and corporate secretary Sleek. Both companies project increased operational efficiencies should API access to banks be granted.
Funding Societies predicts that getting API access to their customers’ financial information from their banks will improve operational efficiency. The lender expects a 60 per cent decrease in time from application to credit decision, a 40 per cent drop in customer abandonment rate and data processing costs per application, and a projected 20 per cent increase in SMEs financed annually.
While there is openness from Singapore banks to explore partnerships around API access, there is a disconnect when the rubber hits the road.
“In our experience, actual engagement has been limited due to considerations around security, compliance, commercial priorities, and the evolving nature of industry collaboration,” said Kelvin Teo, CEO and co-founder, Funding Societies.
At Sleek, up to 15 minutes per client is spent downloading, formatting and uploading statements to an accounting tool. With 10,000 customers, this adds up to 2,500 hours per month of manual labour and 30,000 hours per year lost to inefficiency.
Neobanks and digital banks are eager to provide API access, said Sleek’s CEO and co-founder Julien Labruyere. Traditional banks have been reluctant in general, citing the absence of APIs in their tech stack or wanting Sleek to be their exclusive partner, which is difficult as accountants cannot force customers to a specific bank.
“In all our other markets (the United Kingdom and Australia), banks are mandated by law or regulation to provide API access under the Open Banking philosophy, and this is really a game-changer for innovation in general, and for us in particular,” he explained.
Raising awareness
To be clear, Fintech Nation is not calling for MAS to mandate local banks to open up API access or for local banks to provide access for free. Instead, this report is to raise awareness of the dysfunction within the current system. “This is where (the) public and private (sectors) can come together to solve that dysfunction,” said the Fintech Nation spokesperson.
There are a number of possible models which could solve this issue, such as an API reseller model, in which a company sells access to the API and helps integrate it into different platforms. Another approach would be to approach the issue in terms of industry utility, and leverage MAS’ grant supporting projects that build industry-wide utility infrastructure.
On the consumer side, SGFindex allows retail customers to see bank and investment balances across all their bank accounts at different banks. While SME customers will require something with more granularity, including daily transactions, SGFindex proves that such projects can be done, and could represent a third possible business model. “Whichever is the model, this is a dysfunction in the market from that perspective; it is nobody’s fault, (and) it would be helpful for the overall ecosystem if it could be addressed,” added the Fintech Nation spokesperson.
