HKMA reinvents digital finance with CDI
One year after the introduction of a consent-based data exchange platform Commercial data exchange (CDI), Hong Kong Monetary Authority (HKMA) shared some successful proof-of-concept cases during last month FinTech Week 2021. These cases demonstrate the transformation of banking operations and open new digital opportunities for businesses in Hong Kong.
Designed to enable more efficient financial intermediation in the banking system and improve financial inclusion in Hong Kong, CDI is a neutral and secure platform for exchanging alternative financial data between banks and data providers when the data owners (i.e. corporations, SMEs or individuals) own theirs To agree.
For banks, it’s about risk assessment
To demonstrate the business value of CDI, HKMA shared Proof of concept cases transforming banks’ traditional credit scoring model with alternative data to reduce costs and accelerate the loan approval process for SMEs.
“The risk and cost of lending to SMEs used to be high for traditional banks,” said Zanjun Xu, deputy general director of the commercial banking division of Bank of China (Hong Kong) Limited at FinTech Week 2021. She stated that banks “use the same corporate risk assessment mechanism to review SME deals with smaller loan sizes”.
Xu said that most SMEs may not have a well-equipped financial system to provide adequate financial data. As a result, it costs banks more time and resources to review, verify, and analyze the data for risk assessment. CDI provides access to more operational and timely data and gives banks “a better picture of SMEs to understand their potential growth,” she said.
“It also enables banks to better evaluate SMB activity within the industry, which gives banks a different perspective on how to assess risk,” said Ryan Fung, Chief Executive, Ping a OneConnect bank (PAOB), at the same event.
For SMEs it eliminates current pain points
Fung added that CDI also solves the financial problems faced by SMEs, particularly with opening bank accounts or access to credit.
With the goal of making these banking services more accessible to SMEs, Fung said PAOB participated in the CDI’s proof-of-concept exercise and is partnering with Trade connection, a provider of government electronic commerce services (GETS). GETS is an electronic service platform that enables the trade community to submit documents for customs control, trade declaration, trade control and statistics generation to the Hong Kong government. With consent, TradeLink will provide similar information to PAOB to aid in its credit assessment processes.
According to Fung, TradeLink provides trading data from just 14 days and provides updated and validated information for the bank to build credit scoring models.
A similar model has been developed to provide trade finance solutions to SMEs, partnership with GS1 Hong Kong and access to its data, said Winnie Tung, managing director & head, business banking, Standard Chartered Bank (Hong Kong) Limited.
GS1 operates the B2B ezTRADE platform, which contains digital transaction and sales records for nearly 2,000 Hong Kong and China companies in the retail, FMCG, cosmetics, healthcare, food and hospitality industries. Tung said members of ezTRADE can give their consent to share their data on the financial health analysis platform with Standard Chartered Bank, easing collateral or financial statements requirements for access to trade finance services.
Another example is that Partnership between HSBC and HKTV Mallwhere merchant data, including sales and refund records of various types of goods, may be shared with HSBC with merchants’ consent to analyze and forecast business performance during the credit assessment and monitoring process.
Retailers can use BNPL. to use
The value of CDI goes beyond access to credit, said Peter Koo, partner, risk advisor, APAC chief, IT and specialist insurance company at Deloitte Touche Tohmatsu.
He said another significant opportunity for CDI, especially for retailers, is the rise of Buy now, pay later (BNPL). Aimed at consumers of Generation Z or customers without an extended credit history, BNPL is the new payment option supported by installment loans at the point of sale.
BNPL providers are also transforming the traditional credit check process, aiming to offer short-term interest-free funding to credit card-less consumers. In Hong Kong, however, BNPL is available with limited options, including livi PayLater or e-mall atomto support small transactions ranging from HKD 5,000 to HKD 10,000. In order for BNPL providers to better manage risk or late, missed payments, they could use CDI to access individuals’ digital footprint data once they have given their consent when building a risk assessment model.
“BNPL is a very popular payment option for e-malls in China and is slowly picking up speed in Southeast Asia,” said Koo.
He said CDI could aid the rise of BNPL, which is expected to offer retailers and distributors promising opportunities to enter the Gen-Z market and small families. CDI can also be the foundation for transforming the local banking system, enabling digital services similar to the dynamic open banking market in Europe, Koo concluded.
Sheila Lam is co-editor of CDOTrends. As a journalist, she has been reporting on IT for 20 years and has seen the emergence, hype and maturity of various technologies, but is always excited to see what comes next. You can reach them at [email protected].
Photo credits: iStockphoto / peterschreiber.media