Over the last few years, data sharing has picked up great momentum. Companies have started to embrace the data ecosystem model, sharing their data with other companies and even across industries for mutual gain.
Talking about data sharing, it is usually accomplished by an application programming interface (API). Because of its capability to maintain the flow of data between systems in a controlled manner, the banking sector has been leveraging APIs since quite some time, especially in the United States. And recently, APIs have started to gain more attention in other nations and today it has become a part of Open Banking.
Open banking is nothing but a collaborative model that includes a bank and a (more than one) unaffiliated party. Simply put, it is making the bank financial data open to unaffiliated parties in order to provide the marketplace with enhanced capabilities and all this is done with the prior consent from the consumer. About the sharing data, the banking data is shared through APIs to the third parties.
Open banking is the result of PSD2 (Revised Payment Service Directive), which is a European Union directive that came into power in January 2016. It is not just a directive, but it is also considered to be a genuine approach to improve customer satisfaction when it comes to banking through innovative products and services.
Open Banking In India
Talking about the emergence of Open banking in India, it has made its presence through the Indian government’s Unified Payments Interface (UPI) and with passing time, it is fundamentally changing the retail banking landscape across the globe.
If you have never come across the term ‘UPI’, it is an instant real-time payment system developed by National Payments Corporation of India (NPCI). UPI not only allows a consumer to make money transfer between two bank accounts but also allows the consumer to pay merchants directly from the bank account, and all this is done using a smartphone.
Federal Bank’s Open Banking Platform
To be a part of the Open Banking ecosystem, Kochi-based commercial bank, Federal Bank has launched an Open Banking platform. The prime motive behind the launch of the platform is to enable start-ups and FinTech companies to consume the Bank’s APIs and create new innovative financial solutions and integrate various banking services using Open APIs and a simulated environment to build and test applications.
Furthermore, this all-new open banking platform allows entities to explore various APIs that help address various business requirements of fund transfers, smart collections, UPI payments, digital credit or account opening. That is not all, the platform will also help derive great dividends in terms of digitization, automation, reduction of manual overhead and errors and improving TAT.
Federal Bank is considered to be one of the best banks when it comes to deploying the best digital infrastructure for catering to its clientele in the best possible manner. More than 16% of India’s total foreign inward remittances is powered using the Federal Bank’s API platform. The bank also has integrations with several FinTech companies and corporate business houses including big names like Google Pay for its digital credit solutions.
Open banking is believed to have many benefits and it also fosters innovations — whether in terms of customer experience or in the terms revenue stream. However, it is also believed that there are chances that it will transform the financial services ecosystem.
Also, no good thing comes in without a bad side and this applies to Open banking as well. There are several challenges that a company should overcome when it comes to Open banking. Be it security, liability or education/awareness, a company should make sure that everything works perfectly — after all, it involves money.