The banking ecosystem of India has undergone rapid changes in the past 5 years, moving from a traditional product centric, inside-out approach to a consumption based, outside-in approach. With the evolution of open banking, pioneered by BFSI players like Yes Bank, Kotak, RBL etc, the ecosystem has now grown to include NBFC and other tech players who have created partnership within the system. Open banking has now become a part of their organizational culture.
The ecosystem has also seen the emergence of players in the segment of API Validation and data driven solutions, enabling it to grow into perhaps what can be called the most comprehensive and holistic open banking ecosystem in the world
The open banking network ban be broadly classified into 5 categories. With the Bank APIs forming the bottom layer, followed by a technology stack partners on top. This ecosystem is enabled by key players who perform tasks like data validation, analytics and also provide infrastructure. The effectiveness of this network has led to the rise of several use cases like Neo banks, digital banks and big tech players who use bank APIs for their underlying operations. The ecosystem is also supported by investors.
Banks and NBFCs which form the bottom layer of the ecosystem, offer their APIs to perform services like Payments, Lending, Collections etc. These APIs are utilised by core banking platforms which are the backend systems that enable day to day transactions like disbursements, collections etc.
With the open banking system consisting of players, who specialise in different segments, it is important to ensure that there is a seamless integration. This is enabled by the technology players, namely API Integrators, who have the required coding expertise.
The requests sent to these banking APIs are further filtered by the API Gateway players, who provide an additional level of security to the Bank APIs. It is a layer that sits between the client and the service provider and ensures that all requests across the table are authenticated in a secured manner.
With APIs being present in almost every aspect of banking dealing with highly sensitive information, validation of API by the API Validators become a critical task. These validators use frameworks to ensure that the correct and pre-approved response is being sent to the service provider for every request.
API stack players provide a pre integrated systems that simplify the partnership between banks and fintechs. It is predicted that as the ecosystem grows and evolves over the next few years, this segment will see a lot of action.
Open banking cannot be truly achieved without the democratisation of the customers’ financial data. With the RBI’s directive giving customers the control to share their financial data via NBFC AAs, they enable customers to view all their financial information in a single platform and then share it with their explicit consent with third parties like wealth management institutions, Credit management, Insurance providers etc,
With all these players providing the necessary infrastructure, Neo banks layer themselves on it and take on a customer facing role, working in different customer segments like Retail, SMEs etc. These banks are highly specialised in solving the specific pain points of their respective segments. The underlying operations of these Neo banks are usually taken care of by traditional banks using their APIs. Due to the high growth rate and profitability of this space, several big tech-players have also begun entering this segment.
The open banking framework has largely been possible due to enablers like, data providers who ensure proper risk management by verifying the customer’s identity and credit status.
With the ecosystem acquiring more players and evolving into a more collaborative approach, (rather than a competitive one) the focus has now shifted away from owning the best products and towards providing an enhanced customer journey and seamless customer experience. This is where Analytics and AI also play a key role.