Can HKMA’s CDI Benefit More Than Banks?
- By Sheila Lam
- May 22, 2023
Unleash the power of data. It is the slogan of Commercial Data Interchange (CDI), a next-generation data infrastructure developed by the Hong Kong Monetary Authority (HKMA).
This consent-based data exchange platform is one of the key initiatives under HKMA’s “Fintech 2025” strategy “to create a next-generation data infrastructure and form an ecosystem for secure and seamless data exchange in Hong Kong,” as stated at the official launch announcement in October 2022.
Over six months after its launch, how far has CDI lived up to its promise? What has it achieved? We look closer as HKMA hosted its inaugural Data Summit earlier this month.
SME loans and financial inclusion
During the summit, HKMA stated CDI facilitated more than 3,100 loan applications, amounting to HKD2.8 billion. It is a significant increase compared to HKD1.6 billion SME loans approved at its launch.
“CDI has the potential to not only benefit existing (banking) customers but also unbanked customers,” said Benjamin Quinlan, CEO of Quinlan & Associates, a financial services strategy consultancy firm.
Also a moderator at HKMA’s Data Summit and former chairman of FinTech Association of Hong Kong, Quinlan said the lack of information has been preventing many from accessing commercial loans, causing 40% of Hong Kong SME credit applications, on average, to be rejected or only partially approved between 2017 and 2022.
CDI allows banks to access alternative data for more accurate credit scoring. He said the ability to delineate lower-risk borrowers from higher-risk ones better enables banks to make financial services accessible to more individuals and businesses. It also helps banks to accelerate the loan approval process, which currently takes at least two to three months.
“Overall, this bodes extremely well for financial inclusion,” he said.
Hyper-personalized offerings and corporate auditability
Indeed, one of HKMA's primary objectives with the CDI is to increase financial inclusion in Hong Kong. But it is not limited to that.
“Banks now have the ability to obtain a multi-dimensional view of their customers, which can help them better identify customers’ pain points and demands,” added Quinlan. Banks can create personalized financial advisory services and products through a hyper-personalized marketing approach.
“For individuals, tailored suggestions for better personal finance management or saving plans could be attractive,” added Jeremy Fetiveau, associate partner at global management consulting firm Sia Partners.
Fetiveau said CDI could increase auditability and traceability for banking customers. If enterprises could share their supply chain data to demonstrate their ESG compliance status, CDI could help them simplify funding access and possibly enhance their brand image.
Banks can also streamline their operations via CDI. With easier access to more structured information, banks can simplify administrative paper-based processes and reduce costs to serve CDI-enabled customers.
Data maturity limits data providers and usage
While there is no limit to how companies can use CDI, its current use remains limited to SME loan approval applications. The number of data providers has also remained the same since its launch.
“For traditional enterprises, one possible challenge [to be data providers] may lie in their technical and data analytics capabilities, and whether they have the necessary data experts and manpower to help realize the benefits of data,” stated HKMA.
“Many businesses are still cleaning up their data architecture,” added Kane Wu, chairman of the Hong Kong Data Science Society and CEO of data consultancy firm ThinkCol Transform.
He said many local enterprises remain focused on integrating multiple data platforms to enhance their internal data literacy. Their data structure maturity could limit them from participating in CDI as data providers.
Challenges for data providers
The lack of monetization value and ROI for data providers also discourages enterprises from investing their time and resources to participate. Wu said enterprises need to be rewarded for being data providers.
“Like ChatGPT, the usage of CDI remains unknown until more people start experimenting and playing around with it,” he said.
On top of that, Fetiveau said enterprises face additional strategic and security challenges as data providers.
Businesses may lose their competitive advantage and exclusive right with the existing data by sharing strategic information in the CDI ecosystem. In any cybersecurity or data leakage incident, data providers are also exposed to higher risks in dealing with the legal consequences of data ownership and data privacy issues.
“Under the status quo, it is very likely that the current concerns of data providers will persist,” he said.
Data sharing between the public and banking sectors
Aiming to diversify the data source and broaden the applications of CDI, HKMA is working with other government departments like the Companies Registry.
“When banks can obtain digitalized corporate data from the Companies Registry via CDI, the KYC process could be streamlined. This could potentially speed up the corporate account opening process,” stated HKMA’s spokesperson.
Lillian Cheong, acting secretary of the Innovation, Technology and Industry Bureau, in response to Legislative Council’s questions, also noted that the Office of Government CIO (OGCIO) is expecting to connect its Consented Data Exchange Gateway (CDEG) with CDI by the end of this year, aiming to facilitate data sharing between departments and with financial institutions.
Despite continuous efforts to drive participation of CDI from multiple parties, HKMA noted its priority remains on the banking sector.
“CDI has only been in place for a few months, and its current focus is on use cases in the banking sector, with the aim of providing better support and services to banks’ customers and clients,” stated HKMA.
Unlocking value for non-banking sectors
“For now, the benefits for data providers are limited since they cannot consume other data providers' information and cannot monetize the data they share,” said Fetiveau.
Fetiveau suggested CDI ride on its secure and consolidated data exchange platform to offer aggregated and anonymized data reports, like industry standards and benchmarks, to foster more active participation from enterprises and non-banking sectors.
“For instance, if New World Development and all other real estate conglomerates or mall operators were to share information about their tenants' rent, accessing a Hong Kong-wide benchmark of the cost of a commercial square foot could drive more informed decision-making or differentiated offerings,” he said.
Nevertheless, he said the key to unlocking the value of CDI lies in facilitating both banks and enterprises to consume commercial data on CDI, with the data owner's consent.
“This is the only way to create valuable opportunities for data providers, be it to serve their clients better, unlock new revenue streams, or simplify current operations while maintaining effective risk management practices,” he said.
Transforming CDI
Transforming CDI into a city-wide data exchange platform by allowing enterprises to consume data can bring enormous opportunities, said Fetiveau.
One is allowing retailers to offer Buy Now Pay Later (BNPL). With access to the creditworthiness information of individual customers through the CDI, retailers can make more informed decisions to grant flexible and personalized financing options to their customers.
Any B2B2B relationships, where a bank is one of the parties, could also directly or indirectly benefit from the transformed CDI.
“Merchants on HKTV Mall may need a loan to finance their operations or inventory. HKTV Mall could liaise with the merchant's bank through the CDI to get quick access to a loan, which would accelerate the onboarding of new merchants and further develop the e-commerce ecosystem,” he said.
Quinlan added that non-bank financial institution credit lenders could also leverage CDI to improve their credit rating and risk assessment processes to expand business opportunities. Insurers could also leverage the data to refine their underwriting processes further and offer more personalized products
“To conclude, unless made mandatory by law or regulation, the development of the CDI will only be successful if data providers joining the initiative have the edge over those who don't,” Fetiveau said.
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/tampatra