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The Commercial Data Interchange (CDI), a new financial data-sharing infrastructure, launched last week, marks the next step in Hong Kong’s open banking journey as it targets improved services for small businesses.
Last week, the Hong Kong Monetary Authority (HKMA) announced the official launch of CDI with a view to enabling more efficient financial intermediation in the banking system and enhancing financial inclusion in the country.
The blockchain-based infrastructure aims to enhance data sharing by facilitating financial institutions to retrieve enterprises’ commercial data from both public and private data providers, such as utility companies or payment gateways that the enterprise uses.
CDI is specifically designed to ease credit access for small and medium-sized enterprises (SMEs), by enabling banks to make a more informed decision during the loan application process.
For instance, a small shop may choose to allow its bank to access historical turnover data from its point-of-sale terminals. The bank can use artificial intelligence (AI) tools to create a more accurate forecast for future sales and make better credit decisions.
In addition, small importers and exporters may authorise trade servicing platforms to allow their banks to access reliable trading data.
This should help banks understand their customers’ trade counterparties, which can reduce money laundering risk, Eddie Yue, HKMA chief executive, said two years ago at the time of announcing the proposed initiative.
During the pilot phase, banks extended more than HK$1.6bn ($204m) in SME loans using CDI.
The pilot included 23 banks, including Citibank, HSBC and the Bank of China, and ten data providers, which included six key data providers with substantial SME data, the HKMA said.
Currently, businesses can share commercial data on e-trade declaration, e-commerce, supply chain, payment and credit reference data. However, over time this may be extended to data from government departments and analytics service providers.
CDI and open banking
Hong Kong has generally taken a state-led approach to open banking, with the HKMA taking the lead in building the platforms to facilitate these services.
As part of this effort, the HKMA has developed an Open API framework for the banking industry, which enables financial institutions to open up their internal IT systems and data for programmatic access by third-party service providers (TSPs).
However, representatives of the banking industry have raised concerns about the uncertainty of rules when it comes to liability for the security or accuracy of data.
“If a third party loses the customer’s data, we the bank are still on the hook, as we continue to be the custodian and steward for customer data,” Lareina Wang, HSBC’s head of smart banking for Hong Kong, told the local news service Digital Finance Media.
The CDI framework sets a standardised API and data model, while its blockchain design makes audit records immutable, traceable and verifiable, the HKMA website says.
Advocates say the CDI infrastructure could be the solution to the problems of trust, data and security.
Designed for success
Speaking at the Hong Kong FinTech Week 2022, Yue said that CDI has been designed in a way that it can provide a commercial incentive for all participants.
“The key to success for CDI clearly lies beyond technology,” the HKMA chief said, pointing out that the technology underlying the infrastructure “is relatively simple”.
“Creating a conducive environment to attract all stakeholders to join is far more challenging,” Yue stressed.
Hence, HKMA researchers spent most of the time creating a commercially-viable arrangement to ensure that all participants can benefit from using the system.
Banks can use data to manage credit risks, data providers can earn fees, while businesses struggling to get a loan can borrow more easily and cheaply.
“So, the key to success for CDI clearly lies beyond technology. We need to find the right commercial incentive for all to benefit and create the network effect,” Yue said.
