Opportunities and Risk for Traditional Banks in Embracing Open Banking

Technology has simplified our lives by making the processes easier and integrating into our daily routines.

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Today we cannot imagine making payments without using UPI, that's the impact technology had on the payment systems. UPI has achieved such rapid success in a short period.

Technology has simplified our lives by making the processes easier and integrating into our daily routines. Today we cannot imagine making payments without using UPI, that's the impact technology had on the payment systems. UPI has achieved such rapid success in a short period. The total number of payments done through UPI channel for 23-24 stands at 13.11 trillion which is around 80% of the total digital payments made in India during the period. Beyond its user-friendly interface, it's the interoperability of UPI that stands out as a game changer.

A major credit for the growth of instruments like UPI goes to the Open Banking. It has helped in connecting traditional banks and innovative FinTechs through APIs to provide solutions for payments, lending, investing etc. Open banking has fostered an era of collaboration between the banks and FinTechs. It has been a win-win for all i.e. Banks, FinTechs, and customers.

What is Open Banking?

Open Banking refers to access to the customer data of the banks to third-party developers and service providers via APIs to develop and offer competitive products and services. The sharing of data to the third party API is solely based on the discretion/consent of the customer. The concept originated around 2007 with the European Union's implementation of the "Payment Services Directive" (PSD), creating uniform payment solutions across EU nations. After that in 2015, "Payment Services Directive 2" (PSD 2) was introduced, to widen the scope of payment systems. In India, open banking began with RBI establishing an entity called "Account Aggregator (AA)" in 2016.