8
vritti
September 2017
Although there is a definite shift towards
open banking with push coming from both
enlightened regulators across the globe as
well as incumbent banks who have realized
that the bank of the future will be as much of
a technology company as a financial
institution, there are few challenges on this
path. Without a standard for data sharing or
standardized APIs for banking services,
each bank will develop its own proprietary
API format and integrating all these various
formats will be cumbersome and erode
some of the benefits of open banking such
as easier sharing of data between any two
financial institutions or fintech companies.
Also, it would be hard for the regulators to
evaluate and judge the quality of data shared
by a bank through its APIs, and even
enforcing the spirit of the regulations which
envisages truly open transfer of one's
financial data between financial service
providers through customer's consent in a
seamless manner. Moreover, smaller banks
which do not have the technology muscle and
capital required to upgrade their IT systems
to an open API system will lose out, and their
Mobilution
customers who are typically rural or low
income customers will be left with lesser choice,
and it might create a winner takes all kind of
situation where a few large banks only survive.
Banks have always made use of APIs in their
banking software; but transition from private
and closed APIs to public and open APIs is
afoot. The drivers for this change are
regulatory pressure, elevated customer
expectations and cost pressures. APIs let
fintech and banks collaborate with each
other; banks find new distribution channel
and greater access to customers, help
incumbents innovate quickly and reduce
time to market for new financial products.
Customers' adoption of fintech has been
slower than anticipated, but advent of Open
Banking can upend some of the competitive
advantages that banks have by decoupling
the value chain, usurping customer
relationships and enable merchants and
customers to interact directly with each
other. Europe is the clear leader in this
transformation, but rest of the world is slowly
waking up to the benefits of sharing of
customers' financial data.
About the author: Prasad is Product Manager of mobiquity ® Money at Mahindra Comviva.
He has 5 years of experience in building software products form the backbone to enable
financial services organizations to effectively serve their customers. He is amazed by the impact
access to formal financial services has on lives of people all around the globe and believes
financial inclusion will not be possible without technology led solutions.