The decade started with a lot of expectations and significant changes in the Banking sector. COVID has posed many challenges and changes to the business community, and the Banking sector was no different. However, Banking sector has realized the need for digitization, and seamless open banking infrastructure is the key to achieve it. This report highlights some of India’s significant Open Banking initiatives that lay grounds for more to come in 2021.
INDUSTRY/ GOVT LED INITIATIVES
Account Aggregator
The Account Aggregator concept has been in the market for a couple of years now. However, with more than three entities with the operating license to build the Account Aggregator system. They are namely One Money, CAMS Finserv, and Finvu, COVID has delayed the launch of their platforms in 2020. With no information available about the launch of these AA platforms, early 2021 is just a mere expectation.
Account Aggregators will enable seamless Open Banking facilities by allowing customers to’ consent to share their data digitally. It is expected that the BFSI domain will entirely rely on Account Aggregator services which are compliant with regulations building around Consumer Data Protection, to share or receive the data securely and digitally. The digital transfer of information will enable faster turnaround time from the BFSI service providers and serve the customers better.
Account Aggregators are the key to the transforming Open Banking initiatives in India, and participants network will be a massive one. With the higher focus on customer-centricity through a consent-driven approach and a collection of digital services available at the request of one-click through Account Aggregators, this is the model that Open Banking services from banks in India will scale up.
Open Credit Enablement Network
The new age of financial inclusion in India that will democratize India’s credit-starved population is the Open Credit Enablement Network (OCEN). The traditional model has failed to provide the credit solution for the people in India that needed it the most. This public innovation framework will work in close association with Account Aggregators to bring large-scale innovation and integration capabilities into lending platforms. It hopes to provide loans to borrowers promptly with the help of Technology-driven Open APIs that will put the borrower in the proximity of not just one but a network of lenders. OCEN systems emphasize the use of technology to reduce the gaps in gathering documents and digital disbursement of the loans to serve the new customers better.
OCEN will empower open banking capabilities to individuals and MSMEs with the help of a standardized set of APIs that can effectively plugin the lending capabilities into their current products and services. The impact of OCEN, the Open lending model, is to provide a universal language for lenders to scale and build innovative financial credit products. With the ease of systemized lending, there is a greater chance of improved competition in the lending segment, offering loans at lucrative interest rates to the customers in need of it.
The future of OCEN will pan out, bringing large-scale global players into the Indian Lending Market. OCEN will ensure that lending partners be a regulatory compliant structure that will bring innovation, customer centricity, and new investments into the market. This would reduce the credit gap in the market, leading to improvements in the lifestyle and business capabilities of the customers.
Data Empowerment and Protection Architecture
The Data Empowerment and Protection Architecture (DEPA) puts every citizen of India in the driving seat w.r.t their data. DEPA aims to bring democracy into consumer data space and the service providers, involving standardized technology architecture. DEPA supports a secure, interoperable, and privacy-respecting framework for data sharing. The data sharing happens through Consent artifacts, Open API, and a standard for Financial information. Consent Artefact will be based on ORGANS principle (Open, Revocable, Granular, Auditable, provide Notice, and maintain Security by design), to empower adoption of standards for data storage and processing techniques.
DEPA’s data governance concept in the new age Open banking system will ensure that the customers have complete control over their data. This will help them explore the financial product offerings and bring Fintech players into the market to ensure innovation and competition. DEPA is focused on improving customer confidence in the financial services offered in the market and aims to enhance customer participation in a secure way. Like the CDR in Australia, aiming to include all public services into the Data Protection, similarly, DEPA can spread across into various public services industries. However, tighter data privacy laws could mean peace to customers, and the firms requesting the data must implement advanced infrastructure to safeguard the data from the customers.
Public Credit Registry
Public Credit Registry (PCR) is a repository initiative by RBI that will put together individual and corporate borrowers (new and existing). The idea is to maintain the credit history, outstanding loans, repayment history of the borrowers, ancillary data like overdue utility payments, tax payments data from tax authorities, and other primary data in a single extensive database. PCR aims to reduce the information asymmetry of the borrowers to the lenders in the market, giving the lenders a 360-degree view of the customer’s credit history. PCR will also ensure that the customer’s credit history is available to all the lenders to evaluate the risk and creditworthiness of the customer.
The result of the risk and credit worthiness evaluated will improve the businesses to mitigate risk and provide the choice for the customer, i.e., to choose and compare the lenders and their services. TCS and Dun & Bradstreet have been identified as the bidders at the forefront, with a pending technical evaluation from RBI.
PCR will reduce the information asymmetry in the market, which focuses on improving the business conditions. The open repository will ensure that the lenders account for the individuals, corporates, SMEs, and MSMEs on loan outstanding, repayments, loan exposure, collateral, including the incoming cashflows, helping the lenders reduce bad debts. PCR will also ensure the monitoring of the microfinance industry, improving transparency in the market.
Though there are heaps of initiatives ahead to be implemented, for the PCR to get Operational, there is a lot it can bring to the table to both customers and lenders to ensure a win-win proposition. With the Open API technology, OCEN and PCR, the lending industry is due for massive reforms that can transform the industry’s outlook.
INITIATIVES BY PRIVATE PLAYERS IN THE COUNTRY
ICICI Stack
‘ICICI Stack’ is a set of APIs and comprehensive digital banking services for individuals or commercial customers. It offers more than 500 services that provide all the banking requirements to the customers in one location. Most of the services offered are the first time the industry has experienced and are available on the bank’s portable platform.
This acceptable initiative from ICICI Bank offers digital services to Individual customers like the opening of instant savings account, Fixed Deposit, Public Provident Fund, Buy Insurance, wealth creation, among others. The Business customers can use Insta Biz, Point of Sale, or Payment gateway (as the need suits the customer), Insta Overdraft, access to Biz circle, among more. It is leading the Open Banking path with seamless digital facilities available to the customers 24*7, without visiting the branch.
As a result, retail customers can have an enriched experience while business customers can improve productivity even while away from the office. It was the initiative that was Just in time when the situation demanded business behind closed doors, and this could be the future but in a different and better position.
Angel Broking and Edelweiss
The Banking industry is raking up the technological innovation through Open API’s. It is also spreading to the specialty firms in the BFSI segment. Firms like Angel Broking (Financial Services – Trading) and Edelweiss (Insurance) have also introduced Open APIs. Witnessing these innovations, one can now agree that the whole BFSI segment is bullish over the business-centric Open API approach.
Analyzing the case of Edelweiss General Insurance, the Open APIs can enable enhanced claim process, collaboration with other insurance providers, and distributors with low cost of integration with ease of access to information in real-time. The API sharing will give the customer a choice and a better experience on all claims or post-insurance needs. Other prominent players also enabling APIs will ensure high participation of Technology-driven Insurance to make life easy for customers. Angel Broking’s Open API will allow new investments and trading platforms that can run without the burden of licensing. Their Open API will enable end-to-end broking services and enable new products to be trading ready in minutes.
This will enable traders to have the flexibility to implement their algorithms for trading, new start-ups building innovative solutions, and to offer personalized trading platforms and websites catering to investing and trading audiences. The impact of Open API from Angel Broking will bring the long-awaited personal touch to not-so-tech-savvy customers, making trading the next wonder segment that can transform the financial services industry. The industry’s future could be exciting. New start-ups are building robotic advisory services on stocks or Language assistants, or platforms that can speak to the customers, eliminating the lag in real-time trades.
ICICI Bank interoperable Banking Application
ICICI Bank has emerged as the tech innovation leader among the other banks in the industry. They have recently launched a ‘first-of-its-
kind’ mobile application ‘iMobile Pay’ can now allow payments and banking services to customers of any bank. Through ‘iMobile Pay,’ customers can generate UPI IDs, pay bills, shopping, fund transfer, use digital wallets, online recharge, and Banking services like savings accounts, loans, investments, credit cards, among others, by linking their account to the ‘iMobile Pay’ application.
Taking the technology capability of the other banks out of the equation, this initiative from ICICI bank will enable the customers’ movement towards Open Banking, as it was mainly market-driven to date. ‘iMobile Pay’ could facilitate the customers of regional, cooperative, and small banks with UPI, bill payments or other seamless banking services. This innovative solution from ICICI bank could set other banks with sophisticated applications to attract a new wave of customers, bringing large-scale interoperability and personalization to the banking sector. The smaller banks will have to gear up to this tech prowess; else, the customers could gradually play makeshift from one bank to another.
Will this initiate the banking industry to port accounts from one bank to another like mobile numbers and the customer’s credit history? That would be something that we can think of in the future.
HDFC Bank Smart Hub Merchant Solutions 3.0 for SMEs
‘Smart-Hub Merchant Solutions 3.0’ is an HDFC bank initiative to allow self-employed professionals and merchants to accept payments. These payments can be in-store, online, and on the go by the instant current account offering. The bank is looking at 20 million customers to use the smart hub. These customers are targeted from semi-urban and rural India to deepen the market penetration of digital payments across India. Smart-Hub will be both Mobile applications-based and web-based. It will support features like POS, Digital Khata, collection reminders, management of billing, inventory, payments, and lending based on their bank history/business capability.
This technology-driven Business initiative will provide an ideal forum for the merchants to enter the digital ecosystem through convenient and straightforward solutions. Smart Hub will take digital payments and technology to manage the businesses in rural India. This will improve the bankable capabilities and bring in digital reforms to small-time vendors. The digitization of every business will transform India into a completely digital country in near future.
2020 being a revolutionary year in terms of improvements, and investments in technological services from every firm. Significant changes and reforms are coming from the BFSI segment, especially in the Banking industry. With almost every central bank investing in tech, infrastructure could mean the banks will soon be executing Open Banking services. 2021 will witness the most exciting Open Banking concepts turn into reality, marking it to be the year of reforms.