OPEN BANKING IN INDIA
BANKING FINANCE|September 2021
Open banking is defined as the sharing and leveraging of customer-permission data by banks with third-party developers and firms to build applications and services, including for example those that provide real-time payments, greater financial transparency options for account holders, marketing, cross-selling opportunities. Individuals jurisdictions may define open banking differently.
Hartosh Kuamr Srivastava

Technology has connected the entire world. Through internet connections and electronic gadgets the reach to information, services, and products has become child's play. The innovative technology has enabled the banks and the financial institutions the access the untouched market segments, people who remained unreachable. In recent years, technology-driven modes of financing, new financial business models, specialized financial services, and products are emerging and driving FinTech innovation in areas such as P2P lending, wealth management, microfinance, smart contract, artificial Intelligence, machine learning-based decision analysis systems, and Robo-advisory, etc. and have started to shape the regulatory engagements and discourse. Integral to this discourse is the issues concerning data sharing, data access, and to a large extent data democratization.

In addition to the extensive focus on payments channels and transactions, accessing the financial data of the consumers is also looked on. Digital exchange of financial data can become the building block for new emerging service models, clearing inefficiencies in the process and venturing new product possibilities. Thus regulators acknowledge that enabling a simplified framework for the financial information data exchange has the potential to transform the financial systems and may lead to product innovation and provide better financial services to the consumers and end-users. Therefore, the financial data access and distribution has significant implications not only for the concerned stakeholder institutions but also for future economic growth.

The Basel Committee on Banking Supervision, November 2019, study report has observed that while sharing of Bankhead, customer-permission data with third parties have been taking place for several years, increased use of digital devices and rapidly advancing data aggregation techniques are transforming retail banking services across the globe. This sharing of customer-permission data by banks with third parties is leveraged to build applications and services that provide faster and easier payments, greater financial transparency and options for account holders, new and improved account services, as well as additional marketing and cross-selling opportunities.

Such initiatives also raise the issue of whether financial institutions as holders of data of individual customers should act only as agents and whether they should have ownership stake driven by commercial considerations. It is quite clear that the right to data accessibility and uses should vest in the owners of data rather than the holders of data. Apart from this data democratisation, there are major concerns around transportation and storage of data in safe and secured manner enveloped within a consent-based architecture. Different jurisdictions are currently trying to address this need for a framework that allows efficient and secure navigation and enables the use of customer's financial data through different methods; for example, by allowing use of open API frameworks within financial institution's user applications. In India, we too have envisioned a similar ecosystem of account aggregators (AAs) to broaden the scope of financial data sharing.

Globally, open banking regulatory frameworks are structured to enable third party access to customer permissioned data, requiring licensing or authorization of third parties, and implementing data privacy and disclosure and consent requirements. Some frameworks may also contain provisions related to whether third parties can share and/or resell data onward to fourth parties, use the data for purposes beyond the customer's original consent, and to whether banks or third parties could be remunerated for sharing data. Open banking frameworks may also contain expectations or requirements on data storage and security.

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