Technology is constantly evolving to make life easier and more convenient. Although not everybody is in its favour, technology’s pros certainly outweigh the cons. Moreover, keeping up with technology’s leaps and adapting it to changing needs is the key to survival in a rapidly transforming and volatile world.
In the recent past, data breaches and security lapses have made people cautious about how and whom they share their personal data with, and rightly so. Many users are still wary of third party apps like Paytm and Google Pay getting access to their personal financial information. They prefer the good old NEFT and cheque system wherein they are dealing directly with their bank – their trusted friend for decades. However, new forms of banking such as Open Banking in India are developing at a steady pace and traditional systems of banking are undergoing swift changes.
Open API Banking in India
According to Business Insider,
“Open banking is a system under which banks open up their application programming interfaces (APIs), allowing third parties to access financial information needed to develop new apps and services and providing account holders greater financial transparency options.” (Business Insider, 2019)
Open API banking in India has grown over the last three years – a fairly recent development (Digital Fifth, 2020). Although countries like the United Kingdom embraced Open Banking way earlier (Alphabeta.io, 2019), Indian government and banking institutions are taking time to warm up to the idea of third parties and/or APIs getting access to financial data of citizens. However, if banks don’t amalgamate fintech and APIs into their mainstream, the latter will gallop ahead quickly leaving banks in the lurch.
Take the example of neo banks like Paytm – originally an e-wallet platform which gradually transformed into a seamless digital banking experience integrating with bank accounts, APIs like travel booking platforms, food delivery, insurance, mutual funds, etc. – to enhance user experience and keep them coming back for more. Fintech platforms like Paytm and Phone Pe have persuaded banks to work with them and not against them. Several banks have seamlessly integrated with third party apps such as Phone Pe, Amazon Pay, Rupay, etc. as a result of a shift to customer-driven banking.
According to IBS Intelligence, major Indian banks such as Kotak, ICICI, HDFC and Yes Bank have jumped the Open Banking bandwagon and are enabling hundreds of API innovations with a strong customer driven focus. Yes Bank is pioneering the Open Banking API movement in India with the Yes Bank Fintech Developer Hub, “India’s largest API sandbox with 50+ virtual APIs, marking the evolution of the bank’s technologies to Open Banking” (Your Story, 2019).
Open API Banking in India: The Road Ahead
Although Open Banking is here to stay and evolve in India, it is a cultural shift for a country with conservative social values and a cautious government when it comes to banking and finance. The road to a fully transformed Open Banking framework is projected to be a long climb. Alphabeta.io (2019) quotes a Credit Suisse report stating that 72% of consumer transactions in India mainly by rural merchants are cash transactions. Moreover, MSME businesses and unbanked individuals who lack access to formal credit are also left out of the digital banking framework.
However, gradual policy changes like aadhar and relaxed regulations are being put in place for greater financial inclusion and credit access. RBI’s permission to NBFCs, and most recently, banks such as IndusInd Bank to register as Account Aggregators (AAs) is slated to be empowering for customers. This is because customers, both individuals and SMEs, will be able to securely and digitally share financial information, as opposed to physical document submission, with banks, NBFC’s, etc. Above all, customers will have greater access to a host of financial products and services.