Open Banking – Emerging Banking 2.0 in India.

Last Updated on May 10, 2021

open banking
Open Banking Concept


Open banking in India is in a very nascent stage. It is due to fact that the Indian banking system focuses more on security and privacy. Think of open banking as the digital variant of your traditional banks with whom you deal on regular basis. Except open banking has much more to offer when compared to the traditional banking institutions. The open Banking system is used widely around the globe by Monzo in UK, Xinja in Australia, and N26 in Europe as some of the best examples.

What is Open Banking?

Open banking systems sit on the top of the traditional banking system using an application programming interface (API), that let third-party developers and fintech build applications and services, including those that provide real-time payments, greater financial transparency options for account holders, marketing and cross-selling that you are connected with your traditional banking system but in a more streamlined and digital manner. It also prepares you for the future, where the neo banking concept would be used on daily basis. Imagine getting the loan approval, KYC process done in seconds through your phone, with your verified data that is already available with the banks. If this sounds good, then welcome to the future of banking and financial services.

Whenever you want to open a new bank account, you have to go through the same tedious process of doing your KYC every time. When you apply for a loan from different financial organizations, you need your bank account details and the credit score for getting high amount loans. All these processes time consuming and very inconvenient.

With open banking in India, you can conveniently breeze past these processes in minutes.

Open banking opportunity in India

Open banking has an estimated market size of about 39 million customers. India is still in the initial phase to adopt open banking with a market size of around 3-4 million. Due to the ease of financial services offered by the open banking system, it is expected to grow at a rate of 46% between 2019 to 2026. India offers a wide range of opportunities for the neo banking segment as most of the people, here, have their deposits in traditional banks. According to the BCG FIBAC Report 2017, Indian households have put $1.8 trillion of deposits. With an ever-growing customer pool, open banking has a futuristic opportunity to cover the Indian market, which currently houses around 600 million bankable populations.

Few Beneficial Open Banking Applications in India:

  • CIBIL: CIBIL was set up in 2001. It is India’s first credit bureau built using open banking technology. It helps you calculate your credit score used widely by the bank and other financial institutions.
  • UPI (Unified Payments Interface): UPI is the most used open banking application in India, which gained momentum after demonetisation in 2016. UPI made lives easier by seamlessly integrating with the bank accounts and carrying out real-time transactions, payments, and shopping at one click from the app.
  • Central KYC: A single KYC repository that connects and verifies your identity with one click.

All these third-party institutions have made financial life easier by using secure banking data and carrying out transactions on user’s behalf through open banking API. India introduced the Account Aggregator Framework (AA) that focuses on user’s safety and privacy and let the users never share this confidential information. To ease this scenario, banks have come up with open banking APIs that allows third parties to exchange the data in a secured manner directly. The sharing of valuable information between the Banks and the third-party providers (TPP) happens on regulated platforms that ensure financial data’s privacy and safety.

Indian Banks Adopting Open Banking:

Many Indian banks have come with their Open Banking API for fintech and third-party developers. Fintech and no-banking financial institution can build an application using open banking API offered to provide the best customer experience.

  • Kotak API Banking: Kotak Mahindra Bank introduced API Banking in 2019 through open banking technology. Kotak Mahindra Bank developed their Open Banking API that allows Fintechs and developers to access the Kotak API and gather user’s information.
  • Yes Bank API Banking: The Yes Fintech Portal launched in 2019 tried to deliver many useful benefits. Yes Bank’s API sandbox consists of more than 50 virtual APIs that act as an enabler for fulfilling the users’ various needs.
  • HDFC API Banking: Developed and launched in 2019, the HDFC Bank Public API Portal has more than 142 APIs. The portal generates a unique key and allots it to each of the TPPs to access the HDFC database.
  • ICICI API Banking: ICICI Bank launched API Banking with 250 APIs in January 2020. It helps the developers access more than 250 open banking APIs for building integrated software to collect and harness user information.

Future Trends on Open Banking in India

With a focus on equalising the field for all the financial entities for level participation, data sharing is a significant factor. The government has already given a green signal to the adoption of the open banking model, where the UPI is a prime example. M-Pesa, mobile banking, TPPs are some of the success stories that originated from the concept of open banking in India. The future of open banking in India looks warm and welcoming, with both the public and private institutions co-existing and benefitting mutually.

Frequently Asked Questions:

1. What is open banking?

Open banking is a digital financial system where the bank share user’s financial information with a third-party application, through the use of Application Programming Interface (API), based on the user’s consent. It gives the user the comfort of getting customised financial services that saves both time and money.

2. Which Indian Banks are offering open banking APIs?

Indian banks such as Yes Bank, HDFC Bank, ICICI Bank and Kotak Mahindra Bank offers open banking APIs for fintech and financial institutions.

3. What are some applications of open banking in India?

Open banking has become important nowadays with few great examples like CIBIL, central KYC, UPI, wealth management apps like ETMoney, Zerodha, Groww, etc.

4. Is open banking safe and secure for the user?

Yes, open banking is completely safe and secure as the banks offer an end-to-end safe and secure API integration with the TPPs for security & privacy. User’s information is solely used by the registered TPP after the user’s consent.

5. Is open banking a way into our future?

Open banking has reduced hassles from the customer’s point of view and has also acted as an enabler for many financial institutions to grow their business. It will certainly change the way of the whole financial ecosystem in the near future.

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About the Author: Om Prakash