India moving towards open banking
There is lot of talk these days about open banking. It has been there in the US and Europe and India cannot afford to be not taking notice. Under the Open Banking Standard, which is in fact a UK initiative by the Open Banking Working Group (OBWG), banks can share users’ data in a secure manner through open APIs with third party apps, such as fintech companies. So, open banking envisages sharing of data so that customers, be it individuals or businesses, can more effectively manage their finances. Open APIs would also allow third party developers to create helpful services and tools that customers can utilize.
An important step in ushering in open banking was the legislation adopted by EU and the UK in January 2018. The legislation emphasizes that banks must share transaction and customer data with authorized third party providers. And banks can do this through APIs.
Currently, enterprises, especially the small and medium ones, though using software for managing their finances, cannot incorporate transaction data in their books automatically and in real time. With APIs from their banking service providers, it would be possible for them to access all bank data in real time, ultimately giving them more accurate and up to date information on finances. They will be able to compare and save on their accounts and have access to more personalized resources for making banking decisions. It may take years for this system to mature and consolidate.
As far as the banking sector in India is concerned, while there are several developments - the changing customer patterns, advent of digital tools, increasing use of technologies like distributed ledger technology - open banking is still far away. But banks are keen to experiment and finetune the system. For a bank, data confidentiality and security are supreme in order to have the trust of the customers. Bankers are concerned about the effectiveness of the Indian data protection rules.
Recently, private bank DCB Bank has launched its open banking platform to create a collaborative ecosystem with enterprises, fintechs and app developers. Yes Bank was the first to launch APIs allowing integration with ERP systems of corporate clients. RBL Bank has an API banking services platform for use by enterprises. Kotak Mahindra Bank has an API platform for lending and payment products. A couple of public sector banks have also initiated open banking processes.
A significant related development in this journey towards open banking in India has been the neo-banking platform Open, a first in India. The idea is to facilitate SMEs to adopt digital with Open becoming an interface. It began its operations in partnership with ICICI Bank and now 11 banks are its partners. With bankers now discussing to open their APIs for fintech startups to build solutions around it, Open hopes there are opportunities for it.
Open banking has definitely paved the way for a collaborative ecosystem between banks, fintechs and third-party providers to offer varied and personalized financial services and a better grip on decision making depending on funds available at a given point of time. As open banking has disrupted the banking ecosystem at the global level, it is just a matter of time that the Indian banking system migrates to this platform fully.
N. Mohan Mobile : 93228 95820 Email : mo[email protected] bankingfrontiers.com