In China, the lightning-fast development of open banking reflects the rapid growth of the internet and smartphone, which are now central to everyday life for Chinese consumers. The internet has enabled the creation of direct banking, which allows consumers to set up online accounts to access banking services without ever setting foot in a branch. Direct banking was adopted by both traditional banks and a host of new startups with no physical branches – there are now more than 3,000 banks in China.
As direct banking grew, banks leveraged application program interfaces (APIs) to expand their customer service coverage, offering financial services across other lifestyle services such as e-commerce and creating a vast ecosystem of products across sectors. Now China’s banks are using their open banking portals to redefine their entire role, positioning themselves not just as financial institutions but as technology companies and lifestyle partners for customers.
Until recently, much of the growth in China’s open banking has occurred in the absence of any mandates, API standards or regulatory protection of customer data. But this is changing, with Chinese regulators cracking down on the questionable practices of some peer-to-peer (P2P) lenders and cryptocurrency traders.
China’s approach to regulation, both in the financial sector and beyond, is best described as pragmatic and organic – allowing industries to develop through experimentation and stepping in to tackle problems as they appear. The Government is treading carefully, anxious not to slow down innovation, but instead establishing frameworks that support its growth in a manner that offers greater protection to consumers.
China reportedly will introduce regulation that mirrors that of Europe’s General Data Protection Regulation (GDPR), though timing of any implementation is unclear. It is expected that regulation of China’s open banking sector will continue to unfold as the country considers its evolution in other markets.
The world's most connected consumers
A laissez-faire approach to regulation may have allowed the expansion of open banking in China, but demand from China’s fast-expanding, digitally connected middle class is the biggest driver for its success. Today’s typical Chinese consumer carries no cash, or even cards, preferring to transact via mobile banking, which has taken off faster in China than anywhere else in the world.