The launch of multiple open banks in the last couple of years like Bank Open, Niyopay, OKCredit along with their massive funding have made Open Banking the hottest trend in India. As of now, at least 10 new players are in the process of building an Open Bank. Many lending/ payment/ wealth players are also looking at the possibilities of transitioning into an Open Bank.
Open banks essentially offer banking services through their partnership with banks. These services are embellished with critical needs of customers like invoicing, accounting, taxation, etc. to make their services complete.
As an MSME customer, I have realized that I have a limited need for internet banking services of my bank. What I want is that entire banking services are executed out of my invoicing and accounting platform, which I use on regular basis. This will solve the issues of payments as well as collections and help me in getting loans (as and when I need them).
Open banking models are primarily focused on two key segments: Retail and MSME/SME. Within each segment, there are possibilities of targeting large sub-segments, thereby avoiding competition.
Retail: Open banks would be offering accounts, payments, lending, wealth, e-commerce and other personal services needs through partnership with banks and other providers. This segment is extremely tough as existing large players like Paytm, Phonepe is already offering these services.
Msme: The business needs of this segment have not been managed by their banks as well as current Fintechs. Open banks can create value by offering a single platform for invoicing, accounting, taxes, payable/receivable management, payroll, etc.
I personally believe that the SME segment will see the hyper-growth cycle in the next couple of years. This would be accentuated by the lack of focus on banks in this segment. Most banks offer focused services for Retail and Corporate customers. However, the MSME segment is considered a hybrid and complex by banks & hence most banks do not have powerful MSME offerings through digital channels.
In the next blog, I will share reasons for banks to collaborate with Open Banks.
