Digitisation is slowly yet steadily consuming all our day to day functions, in a quest to make them simpler to execute. Resultantly, we have life processes that are easier, faster and better all thanks to the tech influx. Even the economy, on the whole, has started to transition into a digital data-driven engine with its ability to access, edit and share data easily and fast. More and more enterprises today are trying their best to fulfil all of the needs of modern consumers through either a mobile application or a website for enhanced ease.
Talking of financial transactions, online users often face a lot of hassle in the absence of a virtual wallet. Most banks are built on top of legacy systems and steer away from supporting online transactions.
While the trend brought forth by credit and debit cards, along with custom transaction systems by banks have bridged the gap up to a certain degree, extent, there is a lot of scope for what can be done to ease the process of financial transactions. Open banking is a welcome recluse to address the discrepancies in the market.
What is Open Banking?
Open Banking involves opening the internal services framework provided by the banks. The open banking services are initiated in the form of accessible, standard and secured APIs to the external world.
Third-party developers can use these APIs to provide efficient services and applications to the general population. Further, authorized third-party developers are at liberty to develop applications that consume these APIs for providing better facilities to the general population.
The point to be noted is that third-party developers do not actually need to build separate applications for each bank. The exposed API remains common to all the banks. The third-party developers only need to work on a single app to support all the banks which follow Open Banking. Thus, customers get to access all their bank accounts through a single wallet.
Open Banking: Mutual Win-Win
Most banking companies handle transactions through their existing frameworks and do not show interest in adapting to novel management solutions to ease the process for the end customer. Furthermore, due to lack of technical expertise, they often fall short in handling customers when it comes to offering modern functionalities and developing applications. Banking institutions often struggle when it is about providing new facilities for customers. On the other hand, third-party developers have prolific apps to help customers. However, they lack access to the customer base, which can benefit from it.
Open banking can fill up this existing gap between banks and third-party developers. Banks can expose an API for their services and keep up their regular functioning still. A fintech or third party developer can then deploy their solution to the customer base by using the open APIs provided by the banks.
While the banks do not have to get into the nitty-gritty of developing new apps to facilitate the customer’s experience, open banking saves the third-party developers from having to find a customer base. Third-party developers can extend their solution to the existing customers of the banks.
Pros of Open Banking
The convenience of Single Account to Access Services from Multiple Banks
Open Banking defines a standard mechanism that all participating banks have to follow when exposing their services to the outside world as an API. Using a standard API across all banks, third-party tech developers or Fintechs can easily aggregate all of a customer’s bank accounts into one singular digital account. This single account can be used to perform all the transactions and payments on behalf of the user.
Since only verified and authorized third parties are allowed to use the APIs exposed by the banks, it renders the users’ financial accounts more secure. Customers do not have to keep up with multiple online accounts for each bank which opens them up to more chances of attacks.
New Services and Better Solutions
With open banking, the third-party developers end up building new services and provide better solutions for the end-users. Customers appreciate new ways to make and accept payments. Moreover, it brings along better transparency to the data. Users can easily have a wholesome view of their own financial position without having to check each bank account separately and analyze each statement one by one.
Reduced Chances of Fraud
Open banking reduces the chances of fraud by allowing third-party apps to go through the users’ transactions on all bank accounts and identifying potential scams. Open banking app solutions are built to red flag if there is any unusual activity happening on a single bank account.
The Future of Open Banking in India
Open banking is transforming the banking industry in India, and the trend is set to grow further. It will also provide the opportunity for budding monetization models and the launch of new services in a cost-effective way. Banking companies that have deployed different open banking initiatives have gained access to an expanded ecosystem of services and to reach new customers. They enjoy the vivid opportunity to bundle stand-alone services under your own roof, which is going to redefine their role and relevance in the future.
While the compliance concerns of open banks have ended for the better, the next phase is of welcoming opportunities and challenges that banks face. Adoption of open banking will deliver value-added, premium services via application programming interfaces (APIs) in the times to come.
Although the tools for open banking are still in the early stages of development and robust testing, the advent of standardized processes, intelligent use of data and partnerships are all set to revolutionize banking on the whole. The adoption of open banking will not only enhance the user experience but also generate new sources of revenue.
Open banking can be the next big thing after digital banking. More and more banking institutions are looking at segregating their valuable services to enlist them in the ‘chargeable’ category. They are looking at services that go beyond data capture and money movement and involve creative lines of revenue. Sectors like corporate banking are ripe for disruption too, and open banking can change the game in such areas also. Every banking institution needs to answer how they envision and position themselves in the future open banking landscape that’s fast unfolding in India.
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