Can India Embrace Open Banking? With hundreds of fintech cropping up, either competing or collaborating with banks to offer diverse set of innovative products, the question is - are we ready to adopt open source banking?
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Sectors like retail, transport, food and beverages, education, etc. are all going through a major disruption and all thanks to digitization and open source. But the impact of the trend will be much larger on the financial services sector and the business models based on them are on the verge of digital transformation.
Banking But No Bank
For those of you who aren't aware of open banking, let us walk you through it! For this, the banks are more likely to open their application programming interface (APIs) and share customer data with third party players to develop innovative products and offer customized services to users. Apart from providing real-time bespoke services, opportunities also include data creation and marketplace. According to Sonali Kulkarni, Managing Director, Accenture Financial Services (Banking), "If the banks do it, they have the opportunity to gain almost 20 per cent and if they continue to remain inactive they are most likely to lose about 10 – 30 per cent of their revenues." One of the early examples of open banking in India is Unified Payment Interface (UPI), an instant interbank payment system developed by National Payments Corporation of India. Another instance is SBI-led Bankchain platform, which is a community of banks for exploring, building and implementing blockchain solutions including smart contracts. (Incorporated in February 2017, the platform is operated by Prime Technologies.) Apart from 20+ banks in the consortium, Bankchain has also partnered with giants like Intel and Microsoft.
All About Timing
Rajeev Ahuja, Executive Director, RBL Bank, thinks it is the best time to embrace open banking as the customer buying patterns are changing, emergence of non-traditional competition such as fintech, growing domination of related technologies like blockchain, artificial intelligence, machine learning etc. and lastly, the initiatives undertaken by the Reserve Bank Of India to regulate the payments banks, peer to peer lending platforms, linking of Aadhar, and e-kyc. India has an environment where all these four forces are working together in line with consumer expectation. Companies like Ola, Uber, Amazon, Indigo or Flipkart, BMS that are very different from the banking industry are already following this business model. So, suddenly you will realise that customers have the power to actually switch off and move to a new player. "Our view of the world, including India, banks will see a dramatic shift of fragmentation of services being driven by consumers or business much like we switch on the switch of apps. The mobile gives you the tremendous power of pull versus we are being used to push," he points out.
Who's in Charge?
With open banking, there are multiple stakeholders involved in the business and there is little or no clarity on who owns the customer data or who should be accountable for data protection and security. Alok Jha, Managing Director, Cyberplat India, feels it will be difficult to point out who owns all this data as it will continue to flow from one screen to another. Going forward, accelerating data ownership and customer privacy is going to be very critical. As we make Aadhaar the anchor for customer's engagement with a broader commerce world, customer privacy and data ownership are issues that will continue to rise. Presently, all eyes are on Justice B.N. Srikrishna Committee, which is responsible to prepare the draft of India's Data Protection Bill.
Serving the Unserved
The world of financial services, even in India, has a lot of supply challenges. The cost of providing financial services is very high as against the ticket of the product. Karan Bharadwaj from a Mumbai-based blockchain company Xinfin feels open banking is the only solution to the problem. "A lot of people are underbanked in India, in other words, they do not have access to the bank itself and hence, it makes sense for the country to focus on a digital product for banking services," he shares. The soon-to be trend has the potential not just to solve India's financial inclusion problem, but will also be a fruitful move for consumers as they can access customized products at cheaper cost with few clicks. However, in a country like India, where we are using television to educate people on the sensitivity of one time passwords (OTP) and ATM pins, how safe is open banking - is a question that the stakeholders need to answer.
(This article was first published in the March issue of Entrepreneur Magazine. To subscribe, click here)