Open Banking in India- Everything you must know
By: Financepeer Official
Tags: Loans, Money, Money Management, Finance, Banking

Open Banking in India- Everything you must know

Open Banking is an innovative financial service used in modern banking to cater various customer needs.It provides third-party developers and service providers an open access to customers’ banking, transaction, and other financial data.This is done from banks and other non banking institutions using Application Programming Interfaces (APIs). Open Banking is often referred to as ‘open bank data’. In simple words, open banking is about providing financial information to service providers or third parties in a secured way.

History of Open Banking

A Revised Payment Service directive was introduced by European Lawmakers in 2015,which allowed the use of innovative online and mobile payments in banking. In 2016, the UK Competition and Markets Authority directed nine big banks to allow licensed third party access to their data. This helped all payment service providers to operate at the same level and also maintain security and customer protection.

Evolution of Open Banking in india

The Banking System in India has had constant revolutions.Traditional product-centric, inside-out approach is converted into consumption based,outside-in approach.The former believes that the capabilities and inner strengths of the organisation will lead to better results while the latter believes in creating customer value for a sustainable future. India entered into open banking through Unified Payment Interface (UPI) by Indian Government in 2016. Unlike the initiatives in the UK and US where open banking operations are market driven and Regulation driven respectively, India combined both and created a hybrid model, where both government and markets play an active role in these services. UPI allows individuals to access their bank accounts from registered applications such as Google pay and make transactions. These initiatives were brought into Indian Markets by National Payments Council of India(NPCI).

In recent times, with the emergence of players like, API Aggregators and Digital Banks, the life of customers is simplified. Large banks such as ICICI have also joined the business by releasing their developer portal consisting of over 250 APIs.

List of top private Indian banks who have opened their APIs to Fintechs for better customer Services:

Kotak Mahindra Bank

YES Bank

HDFC Bank

ICICI Bank

Kotak Mahindra Bank had announced its open bank platform launch in November 2018. They had a collaborative ecosystem which is powered by a developer portal making Kotak’s API available to fintechs and developers. The platform offers lending and payment options to serve customer needs. Fintechs developers have to register their details on a portal before getting access to the bank's APIs. The bank had an ABCD growth charter catering

A- AI enriched app

B-Biometric Enabled Branch

C-Context enhanced customer experience

D-Data empowered design

and this initiative has been a part of A, which is AI enriched app.

YES BANK

The fintech developer portal of YES bank was launched in November 2019. It consists of over 50 virtual APIs and is in line with the bank's strategy of creating customers and retaining them through providing them value services. YES bank grants access to four usage categories which are

Management

Payments

Cards

CRM

HDFC Bank

HDFC Bank has 142 APIs in its present catalog. The bank aims at security in exposing APIs to developers along with providing all necessary tools to build applications. The domains include payments, customer sourcing, and servicing.

ICICI Bank

The API portal launch of ICICI Bank was in January 2020.‘ICICI Bank API Banking portal’ has of 250 APIs enabling businesses, fintechs, corporates and e-commerce start-ups to partner with the bank.The portal incorporates a detailed workflow for conveniently moving the API solution to the final production stage.

How Open Banking Ecosystem in India works

Open Banking network in India can be broadly divided into five layers:

Banking Layer-Banks and Non Banking Financial Corporations(NBFCs)

Technology Layer-Application Programming Interfaces(APIs),API Integrators,Networks

Third Party API layer-API Stack Players,NBFC Account Aggregators

Customer Layer-Retail NeoBanks,SME NeoBanks, Digital BAnks,Big techs

Enabling Layer-KYC / AML / Risk Management Players / Credit Bureau,India StackInvestors

Banking Layer

The Banks and NBFCs consist of the bottom layer of the open banking ecosystem.They offer APIs to perform banking services which include Payments, Collections, lending etc. The introduction of open banking allows third parties to develop better personal finance management. This creates pressure on existing banks and financial service providers to improve their services. Due to this increased competition, banks either enhance their financial services or partner with third parties. The banks utilize the APIs to stay at par with the competition. APIs refers to the set of codes and protocols which decides the path of interaction among various software components. These enable day to day transactions like collections, disbursements etc.

Technology layer

This layer is fueled by technology, the integrators who have coding expertise.

API gateway enables access of the bank's API in a secured way. It also handles user and partner authentication, routing controls, API monetization, monitoring and analytics.API Integrators are the technology based startups which guide in development of API Gateways along with handling the bank’s internal APIs. Payment Networks in India provide payment routes to everyone through instruments like Debit Cards, Credit Cards,UPI etc.

Third-Party API Layer:

The API slack provides access to banks to fintechs. NBFc aggregators enable the customers to get a single view of their financial status and consent based sharing of information through APIs.

Customer Layer

These constitute Neobanks- which is a digital bank with no branches. These lack physical existence, and are completely online. Neobanks focus on retail customer needs like savings and payments. Banks like Kotak, SBI and DBS have also taken aggressive measures to new age banking and made retail Digital Banks. Big technological based players such as Amazon and Google have also launched their UPI enabled platforms.

Enabling Layer: Data Providers / India Stack:

These help customers onboarding and management through KYC Check,credit Checks etc.Investors work at all the layers.

Significance of Open Banking in India

Since open banks are digital, they open a wide benefit window which include:

Easy Account Creation

User Friendly Interface

Easy access to transaction Records

Easy Account Creation: Creating an account in a traditional bank is a cumbersome process. When it comes to open banking this process becomes extremely easy saving customers’ both effort and time.

User Friendly Interface: Open Banking provides good customer experience.The interface is easy to understand and fast. The applications are designed understanding the customer needs.

Transaction Records: Immediate transaction recording takes place in case of open banking. This enables customers to access the full transaction history anytime by a simple click.

Apart from this, Open Banking also provides

Operational Efficiency

Standard Delivery Mechanism

Continuous Delivery

Commercialization of Bank’s Infrastructure

API based banking systems can better service multiple activities associated with one customer.These can be further improved by API integration tool. This tool connects externally facing APIs with internal Banking API and manages records.The requests of customers are directed to the endpoint through technology allowing back-office changes without impacting customers’ engagement service. The instant access to financial data is a major requirement of customers' in this digital age. Open banking enables them to choose from various platforms,what would best suit them. To financial institutions, it provides customization of these application software to innovate and develop. There is high growth potential of financial institutions through open banking.

Safety

Authorised providers have access to the data for the service customers need. In simple words, if one wants to look at account details, providers won't be able to receive your debit card information unless you give them your permission. Apart from this, all providers have to comply with data protection rules, this includes GDPR regulation which came in May 2018. According to this, the provider has to inform the customer which data it will use, the duration and how that information will be used.At the end, it's the customer's choice if he wants to opt these services or not. However Open Banking Application Based Programming has a few risk elements. Threat of malicious third-party applications can wipe a customer's account. Cybersecurity is a concern for India.The Reserve Bank of India is also stressed and planning on a framework addressing cyber risk, since indian Economy is being pushed towards being cashless. The other risks with open banking include data loss, identity theft,and terrorist financing activities. Full Digital activities are managed on the web which increase the chances of fraudulent activities. However, Indian Government has increased its focus towards security with encouragement of digital and cashless India.(Cybersecurity in Digital Banking: Threats, Challenges and Solution)

Sharing of Data

“Data sharing is based on consent” The rules say that banks can share information only when a customer gives permission to new providers. The providers will ask for consent to access information.And this permission is withdrawable.

With the consent of customer, third parties can access the following accounts:

Current Account

Credit cards

Prepaid Cards

Savings Account

can be shared

The rules are applicable on accounts which can be accessed online and this online banking is needed to be connected by third party.

However, it is important to know with whom data is being shared. Banks won’t be liable if the customer shares his data with an unauthorised service provider.

These authorised third parties are regulated by Financial Conduct Authority(FCA) and will appear in FCA’s Register or on the Open Banking Directory.

Authorised service providers offer two types of services, and they are required to have different authorizations for each of them.

Account Information Services

Payment initiation Services

Account information Services makes all account information from different banks visible at one place and offers budget features and product recommendations. This could also include budgeting applications and price comparison websites . Payment initiation Services offers direct payment from bank accounts to companies

Is Open Banking Recommended?

Open Banking has a high potential to revolutionise money. However since it is consent based, It's totally based on the customer's personal choice if he wants to share data with a third party or not. They offer better deals and help with finances, one should stay protected before availing these services.At the end it's all your choice

Conclusion

Open Banking in India is the result of increased competition in financial services. Banks are left with no choice but to revolutionize the traditional inside-out approach to customer-centric approach for retaining customers. Open Banking will bring positive changes, with improved regulations, and technology.The banks have to follow “Customer is the King” ideology to survive competition and enhance overall customer banking experience.