A potential blockbuster

Fintechs may have the lead with open banking but banks too can benefit by playing their cards well

In the hinterlands of India, the marketplaces and trade fairs — popularly called melas — are synonymous with barters, bargains and bonhomie. Amidst the din surrounding decked-up platforms and shiny ferris wheels, there’s a great deal of information exchange happening. Traders know what sells like hot cakes at the event, money lenders have prospects lining up and buyers show off their negotiation skills.

This is an “open data” ecosystem, symbolic and in its most unassuming avatar. The concept of open data is woven around free availability, usage, publication and (re)distribution ungoverned by any condition. In India, demographic experiences of the joint family system and community living have paved the way for unrestricted flow of information. 

In the financial hubs, the concept of open data and banking have come to engage and incubate a more enterprising incarnation called “open banking”. Banks process millions of transactions including spends and purchases by their customers on a regular basis. This provides them with a panoptic view of customer choices and preferences. Once this trove of data is “opened up” to the ecosystem through a conduit known as APIs (Application Programming Interfaces) with customer consent, it creates tremendous value for all. 

Typically, it is the fintech companies/third parties that invariably take this opportunity to create attractive digital propositions for customers, as they would now have a smarter understanding of their psyche based on the transaction data available in the ecosystem. Open banking has the potential to herald a futuristic experience for customers in terms of service, accessibility, agility and security and the dynamics would most likely be steered by fintechs/third parties.

While this means the customers would be spoilt for choice, it augurs a grim prospect for the banks, unless they are quick to get their act together. In a fiercely competitive marketplace, banks are burdened with margin squeeze, regulatory pressure, tech obsoletion, fidgety customers and, more importantly, a depreciating self-worth pertaining to native offerings. Lacking on innovation and a compelling time-to-market for their propositions, they continue to risk disintermediation on many fronts ceding lucrative parts of the value chain to fintechs.

In India, the open banking trope can emerge a blockbuster with equitable intentions, provided the stakes are set with due regard for multilateral jurisprudence. The NITI Aayog has already started batting for a national open banking consultation with focus on consumer consent for personal data collection and subsequent anonymisation before its release into the ecosystem. The UPI usecase pragmatically showcases how a well-thought open banking approach can succeed nationally. Several big- and mid-size banks such as ICICI, Yes Bank, DCB Bank and Federal Bank have already boarded the API bandwagon.

While there may not be a “one-size-fits-all” model for open banking adoption, it’s imperative that banks assess their competitive positioning and create justifiable rationales for their open banking strategies. APIs need to coexist with evolving technology and consumer preferences. Banks should collaborate with fintechs through relevant data sharing agreements to boost API development, adoption and monetisation of transaction data.

Chandorkar is vice-president & head, & Misra is director, financial services, Capgemini Invent India