The term Open Banking is used for an online banking system that allows one to give consent to regulated 3P providers or third-party providers to securely access customers' bank accounts. Bank APIs Application programmable interfaces or APIs are the medium that helps these 3P providers to access customers' history, to help them get loans, to make payments on their behalf etc.
Share valuable customer data with 3P companies - Is it safe enough?
Given the data that is shared is encrypted, it is absolutely safe and secure to allow access to 3P companies. Also, the customer decides who they want to give access to the data and for what duration. A user can deny access at any point of time.
Furthermore, these 3P providers are supposed to be regulated by reputed financial bodies of the country. This unification of the tech and financial industry tweaks the whole experience for the end consumer. The data that's stored can be useful in many ways, for example, the third-party company which is given access to the customer’s transaction history can help the customers get a better loan plan by helping them understand their financial condition. By opening and sharing customer data with fintechs, banks help both customers and fintechs to benefit from each other.
Open Banking Scenario in India and how it is helping boost fintech growth in India
The rapid growth of fintech in India resulted in many new financial services like mobile money and digital wallets, which were very convenient for people to use, as they were more economical and reliable. It also led to many people opening bank accounts to take advantage of these services and make banking more systematic.
The GOI and several private companies have teamed up to create a hybrid open banking system in India, unlike in other countries. RBI has granted regulatory authority to a group of companies known as account aggregators (AAs). These companies get access to customer data and act as middlemen.
A large number of private banks in India are collaborating with fintech companies to create alliances and work better to provide better and more quality services as part of this ecosystem. This is driving fintech in India to grow. The growth of neobanks in recent years has attracted quite a bit of attention and helped continue the growth of the fintech scene in India. And of course how can we not credit the UPI. The new way of banking allows users to perform a broad range of banking activities online, from making payments to tracking money to managing their money. More than the range of possibilities that exist today, the potential used cases of the future is exciting. These used cases will hugely impact insurance, lending, personal finance management, taxation, and what not.
In the near future, these technological innovations and advancements will be crucial for every company to grow and compete globally. Fintech is taking a huge step forward in India as the country moves towards the new digital era. Open banking is expected to be at the forefront of this financial revolution. When last updated, there are already close to a million accounts on Account Aggregator system. Something bigger than UPI moment in 2016 is knocking the doors.