HKMA Reimagines Digital Finance With CDI

Image credit: iStockphoto/peterschreiber.media

One year after introducing a consent-based data sharing platform Commercial Data Interchange (CDI), Hong Kong Monetary Authority (HKMA), last month, shared a few successful proof-of-concept cases during FinTech Week 2021. These cases demonstrate the transforming banking operations and present new digital opportunities for enterprises in Hong Kong.

Designed to enable more efficient financial intermediation in the banking system and enhance financial inclusion in Hong Kong, CDI is a neutral and secure platform for sharing alternative financial data between banks and data providers when the data owners (i.e., enterprises, SMEs, or individuals) give their consent.

For banks, it’s about risk assessment

To demonstrate the business value of CDI, HKMA shared proof-of-concept cases that transform the banks’ traditional credit assessment model via alternative data to reduce the cost and speed up the process to approve loans for SMEs.

“The risk and cost to provide loans for SMEs used to be high for traditional banks,” said Zanjun Xu, deputy general manager, commercial banking department of Bank of China (Hong Kong) Limited at FinTech Week 2021. She explained banks were “using the same risk assessment mechanism for enterprises to review SME operations with smaller loan size.”

Xu said most SMEs might not have a well-equipped financial system to provide adequate financial data. Thus, it cost banks more time and resources to review, verify and analyze the data for risk assessment. CDI provides access to more operational and timely data, providing banks “a better picture of the SMEs for understanding their potential growth,” she said.

“It also allows banks to benchmark SMEs operation within the industry better, giving banks a different perspective to assess risk,” said Ryan Fung, chief executive, Ping An OneConnect Bank (PAOB), at the same event.

For SMEs, it removes current pain points

Fung added CDI also solves the financial pain points for SMEs, particularly in opening bank accounts or access to loans.

Aiming to make these banking services more accessible for SMEs, Fung said PAOB took part in the CDI proof-of-concept exercise and partnered with TradeLink, a provider of Government Electronic Trading Services (GETS). GETS is an electronic service platform that allows the trading community to submit documents to the Hong Kong Government for customs control, trade declaration, trade control, and statistics compilation purposes. With consent, TradeLink will provide similar information to PAOB, supporting its credit assessment processes.

Fung said TradeLink provides trading data as recent as 14 days, offering updated and validated information for the bank to build credit assessment models.

A similar model was built to provide trade finance solutions to SMEs by partnering with GS1 Hong Kong and accessing its data, said Winnie Tung, managing director & head, business banking, Standard Chartered Bank (Hong Kong) Limited.

GS1 operates the B2B ezTRADE platform, containing digital transaction and sales records of close to 2,000 companies in Hong Kong and China across retail, FMCG, cosmetics, healthcare, food, and food services industries. Tung said members of ezTRADE can provide consent to share their data on the platform with Standard Chartered Bank for financial health analysis, easing the collateral or financial statement requirements to access trade financing services.

Another example is the partnership between HSBC and HKTV Mall, where merchants’ data, including turnover and refund records of different types of goods, can be shared with HSBC upon merchants’ consent to analyze and forecast business performance during credit assessment and monitoring process.

For retailers, they can take advantage of BNPL

The value of CDI goes beyond the access to loans, said Peter Koo, partner,  risk advisory, APAC leader, IT, and specialized assurance at Deloitte Touche Tohmatsu.

He said another significant opportunity of CDI, particularly for retailers, is to enable the rise of Buy Now, Pay Later (BNPL). Targeting Gen Z consumers or customers without an extended credit history, BNPL is the emerging payment option supported by point-of-sales installment loans.

Also transforming the traditional credit assessment process, BNPL providers aim to offer short-term interest-free financing for consumers without a credit card. But in Hong Kong, BNPL is available at limited options, including livi PayLater or e-Mall Atome, to support small transactions in the range of HKD5,000 to HKD10,000. For BNPL providers to better manage the risk or late, missing payments, Koo said they could use CDI to access individuals’ digital footprint data, upon their consent, in building a risk assessment model.

“BNPL has been a very popular payment option for e-Malls in China, and it is starting to gain momentum in Southeast Asia,” said Koo.

He said CDI could support the rise of BNPL, which is expected to bring promising opportunities for retailers and merchants to tap into the Gen Z market and small families. CDI can also be the foundation to transform the local banking system, enabling digital services similar to the vibrant open banking market in Europe, Koo concluded.

Sheila Lam is the contributing editor of CDOTrends. Covering IT for 20 years as a journalist, she has witnessed the emergence, hype, and maturity of different technologies but is always excited about what's next. You can reach her at [email protected].

Image credit: iStockphoto/peterschreiber.media