Open the bank windows, please

Open banking is like a Pandora’s Box that opens up many questions and disruptions, which both banks and their fintech neighbors need to face

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Open banking is like a Pandora’s Box that opens up many questions and disruptions, which both banks and their fintech neighbors need to face


There are actually some countries where a five-or-six-year-old kid can get a veterstrik diploma. Yes, a certificate for tying shoelaces – successfully.

This utmost basic and silly-sounding skill can, however, matter a lot for the not-so-five-or-six-year-olds in businesses that are facing disruption. After all, they have been sitting on armchairs and well-earned comfort zones for many decades now. To run the race that tech giants and fintech natives challenge them to, banks would need to tie their shoelaces fast and tight for sure.

Ramesh Mallya

A shift to open banking eliminates the need for omnipresent physical branches, so banks will have the chance to serve those unbanked in remote regions.

— Ramesh Mallya, Head of Technology – India, DBS Bank

But there is one knot that would be hard to master. Not because of difficulty but because of visible hesitation and under-the-surface complication. Some of us know it better as the oxymoron called ‘open banking’.


And yet, it is becoming a future paradigm of sorts – powered by new competitive and regulatory dynamics. It is where banks can use APIs (application programming interfaces) or any such models that help them connect easily to the entire ecosystem – which, of course, includes third parties and fintech players. Ostensibly, this can be just that tunnel that helps banks expand their reach and scale. Or help them serve their customers with lightning-fast speed.

For fintechs, it can be just the road they needed to connect to the big city that houses customer data. They can make their hopes for delivering what they deliver – again without friction and with better personalisation. It should help them with the biggest challenge they face. Fintechs, ideally, try to provide visibility to customers, which is real-time and granular. But most banks do not allow the connections to happen or the bridges to be welded. Some fintechs that do not have the API capability – that open banking would provide – end up using native integrations or tactics like scraping from websites.

Arpanarghya Saha

Traditional banking is serious in outlook and equally time-consuming – the next generation consumers do not want to remember passwords, bank account numbers, etc.

— Arpanarghya Saha, Chief Digital Officer, Nippon India Mutual Fund

So, is open banking convenient for customers or a data risk? Can fintechs survive without reliable, secure access to data that have permission for sharing by the consumer and APIs? Can they be assured of the security and transparency that such an environment would demand from them? Also, what about the legacy banks? Is it the future they should open themselves up to, or a competitive onslaught they should find a way to beat? Or ignore?


The pro-argument

It’s not as if all banks are against this concept. A recent Finastra report shows that banks and financial institutions (FIs) do believe that open banking is providing a tangible impact in delivering an improved overall customer experience. About 86% are looking to use open APIs to enable open banking capabilities in the next 12 months. As to the overall percentage of FIs looking to leverage open APIs, the United States showed 92% (a jump of 23%), the United Kingdom exhibited 85% (up by 17%) and Singapore was around 87% (better by 1%).

In the Global Open Banking Report 2020, we can see that (traditional) banks need some steps to open up and innovate as they tap the opportunities brought by open banking. As per an Accenture report, traditional, vertically integrated banks will need to become what they’ve never been before: savvy bilateral traders. So, the ones that treat open banking as a strategic growth priority will position themselves to deliver digital experiences that customers want and boost revenues by 10%.


Looks like banks will have to choose between catching this wave and riding it out – and quickly since as much as USD416-billion in revenue is at stake! The report also augurs that open banking will arrive at different times in different markets, but when it takes off, growth will likely be rapid. Those who belong to the box of skeptics will be, probably, left behind. When the wave arrives, the change is expected to be exponential. This is being echoed in the rapid growth of third-party providers (TPPs) in Europe, a place that is at the forefront of the open banking paradigm. The report points out that the number of TPPs has grown from around 100 to more than 450 in under two years. Also, their focus has expanded from payments and transactional retail banking to encompass the entire financial value chain.

Ashish Tewari

Open banking may help traditional banks serve a new and niche segment, improve engagement and retain their existing customers and appeal to millennials and GenZ.


— Ashish Tewari, Head of Engineering, Niyo

Mohan Krishnan

Businesses are looking for banking to be integral to their workflows for efficient treasury operations as well as accounts receivable and payable functions.

— Mohan Krishnan, Founder, Global PayEX

As to whether APIs and open banking platforms make sense for traditional BFSI players, Ramesh Mallya, Head of Technology – India, DBS Bank, opines that from the customer’s view, they are a great benefit. “Competition fosters creativity, innovation, and better service conditions. As we have observed across all spheres of human activities, financial operations have also become highly automated, mobile, and flexible. The financial sector is becoming extremely competitive with software developers, e-commerce players, and many more entering the BFSI sector and sometimes even changing the rules.”

Open banking offers the gateway to building a powerful ecosystem to service customers and businesses that were previously out of reach in the views of BK Kalra, Global Business Leader, Banking, Capital Markets, Consumer Goods, Retail, Life Sciences, and Healthcare, Genpact. “For example, imagine an account aggregator with a hyper-personalised interface based on an individual’s own data. Easier access to data helps deliver maximum results, especially in areas where banks have often struggled, such as finding better deals on utilities and regular purchases, developing robust loyalty programs, and predicting product needs. In fact, if supplemented by alternative data from internet of things devices, this new relationship hub could deliver personalised savings directly to a customer’s home assistant, such as Amazon Echo and Google Home.”

BK Kalra

Most customers are not yet reaping significant benefits from open banking, which has already created further resistance on their end.

— BK Kalra, Global Business Leader, Banking, Capital Markets, Consumer Goods, Retail, Life Sciences and Healthcare, Genpact

Arpanarghya Saha, Chief Digital Officer, Nippon India Mutual Fund, has been passionate about building new paperless channels for investor acquisition and engagement. He prefers to call open banking as easy banking with all security protocols in place and agility plus service on-demand as the core. “It was required because traditional banking was serious in outlook and equally time-consuming – the next-gen of consumers do not want to remember passwords, bank account numbers, IFSC codes, branch address, residence pin code; thus, expecting them to follow five steps in their electronic bank account to purchase, invest, trade or withdraw was absolute passé.”

Also, customer demand for speed and convenience is nudging the industry strongly towards a truly digital and open industry. In the Pace Pulse 2021 report by FIS, we can gauge consumer behavior post the pandemic for work and leisure, shopping, and banking. The long-term findings in 2021 for Gen Z (18-24) show that 45% use more in-store contactless payments instead of cash or a physical card. The same aspect played for Gen Y (25-29) with the figure at 48%.

As per a BCG report, only 13 out of 249 digital banking players globally have successfully generated a positive bottom line, of which 10 are in the Asia Pacific.

Ask Ashish Tewari, Head of Engineering, Niyo, and he argues that open banking or API banking is a win-win proposition for traditional banks and new-age fintechs. “For traditional banks, open banking may help to serve a new and niche segment, improve engagement and retain their existing customers and appeal to prospective users, particularly millennials and GenZ. It will also give an integrated view and experience of all products, and provide value-adds such as financial planning and expense tracking. Niyo partners with several banks such as Equitas SFB, Yes Bank, ICICI, and DCB to serve segments such as blue-collared workers, overseas travelers, and millennials.”

There is no room for insulated data and capabilities in the new digital world, especially when customers are short of patience and just a thumb away from the next app or service. It helps banks to discover new, future-proof business models and revenue pools, opines Mohan Krishnan, Founder, Global PayEX. “Businesses are looking for banking to be an integral part of their workflows for efficient treasury operations as well as accounts receivable and payable functions. However, standalone bank portals and file-based data exchange offered by traditional banks are disconnected from the business workflows. Add to that multiple banking relationship of companies, which further complicate processes. The duo of open banking model and APIs ‘contextualise’ banking operations across banks from within the company’s business process flows and is the way forward for banks to provide a fast, efficient and seamless banking experience for customers.”

A recent Finastra study shows that even if institutions want to make the shift to open banking, 48% believe regulation is too tight, among other reasons.

Previously, banks operated within a closed data model reckons Mallya. “But, when such dramatic changes are observed globally, it surely means that the existing system is no longer efficient enough. However, it doesn’t mean it should be demolished altogether. Rather, it’s a timely alarm to keep abreast of the times.”

This is where APIs and open banking platforms really enable traditional banks to leapfrog on platform improvements and remain powerful in their business, he argues. “Open banking enables institutes to open up their APIs to third parties, fintechs, and partners to develop newer sets of services in a scalable, automated way.”

According to Saha, surprisingly, the existing traditional banking consumers found this entire piece much easier, and the red-carpet adoption followed in this segment too with handheld devices and apps. He explains that UPIs brought in an open network, cards transformed purchases with zero-touch, investments and services started happening over voice and bots, CASA became wallets, insurance transformed to pay per use, instance, etc., and IPO applications could be pre-booked. “Thus, ease-agility-anytime and anywhere pre-paid purchase which got introduced in the e-commerce retail revolution saw a gradual rise in uptake and today, taking that very cue, customer-first tweaks have led fintechs to re-invent the BFSI space.”

A recent Boston Consulting Group (BCG) report on emerging challengers shines some light on how fast the landscape is changing in the Asia Pacific (APAC). We see about 249 digital banking players globally, but merely 13 have been successful in generating a positive bottom line. 10 of these are based in the APAC region. Digital challenger banks (DCBs) continue to gain traction with consumers looking for increased personalisation and value-added services, the report underlines. It reckons that this evolution is being supported by growing liberalisation by banking regulators. The APAC region commanded 20% of the global DCBs identified by BCG as of the end of 2020, with 50 DCBs operating in markets in the region. Over 70% DCBs have been established from January 2016 to December 2020 alone.

It is also pointed out here that banks that embrace a channel-expansion approach often seek to target existing customers with similar or related products. Also, what unites the 10 profitable players is the backing they get from established companies with substantial ecosystems. Ecosystems – yes, hold on to that thought till we cover the deterrents to open banking.

The not-yet-ready argument

The analysis from Accenture, which is built on data sets covering 20 of the largest economies responsible for over 75% of the global GDP, tells that as much as USD416-billion in revenue will be at stake as the open data wave arrives. And towards whom would this moolah shift? Possibly towards agile players who recognise the opportunity early. That’s why fintechs, neobanks, big techs, and other non-traditional players seem to be preparing to take on banking incumbents for a stake in this new market. And many banks around the world have been slow to respond. The report shows that banks that are not yet considering their place in the open data economy risk yielding the market to more agile competitors.

In the Finastra study, we can notice a lot of reasons that make players hesitate. Even if institutions want to make the shift, 48% believe regulation is too tight. There are some 48% that feel there is not enough government or industry support to foster innovation. As to others, well, 47%feel management or decision-makers are stuck in old ways and 45% blame it on the cost of development and expense of R&D. Interestingly, most industry players are positive for harmonisation. And 83%agree that regulations regarding fintech innovation should be harmonised across different geographies.

As Kalra points out, banks have already invested huge amounts of money in building their APIs but this appears to have been motivated by the need to meet regulatory requirements as opposed to a desire to transform services to further optimise the benefits of open banking for their customers. “Most customers are not yet reaping significant benefits from open banking, which has already created further resistance on their end. The solution to this problem may lie in building innovative networks that use the access to data that open banking provides to link services for customers.”

The hard-to-av oid argument

Open banking creates a need to enhance data security and transparency, reminds Mallya. “Banks and the fintech sector will be forced to come up with greater protection measures. It will move the focus from long and hardly memorable passwords to complex encryption methods. Security prompts will also promote better identity verification procedures based on biometrics such as fingerprint, facial or iris scanning.”

Velocity and mindset would be very salient levers here.

Saha feels that for fintech players like Nippon India Mutual Fund, it means to go on innovating and operate with a customer-first mindset. “We must go on challenging the norm and make the investment and service experience for our consumers easier than the ink-and-mortar signature. Legacy banks and NBFCs are also taking this quite seriously and the entire BFSI and fintech space is coming together to re-transform the one consumer financial ecosystem in this country. Speed will be the key here along with necessary conformances from the various regulatory bodies such as RBI, SEBI, and IRDAI.”

Mallya feels that having a myriad of financial data stored in one place will give banks a better understanding of their customers’ money management habits, financial goals, and needs. “A shift to open banking eliminates the need for omnipresent physical branches, so banks will have the chance to serve those unbanked in remote regions. Furthermore, many emerging start-ups provide small everyday loans to those unbanked and may register those cases as credit history. Therefore, banks would be able to access one’s credit score even if one hasn’t actually used formal banking services before.”

The BCG report also talks of recommendations and traits of building and scaling a digital bank. And a major one among them is that operators should develop a robust banking architecture built on scalable and flexible technology and cloud-native components. They should have an integration layer with standard APIs.

Banks will be able to direct their clients to partner enterprises such as insurance companies, real estate agencies, and car dealerships. Customers will apply for credit for specific purposes. Leveraging the complex open banking data will help banks suggest suitable deals according to individual financial preferences.

The reluctance and fear are understandable; as is the ambition. Open banking would need some more approaches, incentives, and tools before the big line can be crossed.

Getting that veterstrik diploma would not be easy, or even a goal for many, for now, especially when the game can be about tying your shoelaces with another player to chase a win-win. But it can also end up in tying your own shoes together in such a bad way that the very next step can make you stumble. Every knot, tied or opened, hence counts a lot.

Waiting for the other shoe to drop, are we?