The decade started with a lot of expectations and major changes in the Banking sector. COVID or Mutant COVID has posed a lot of challenges and changes to the business community and the Banking sector was no different.
All of this is an old story now
The banking sector has realized the need for digitization and seamless open banking infrastructure is the key to achieve it. In this report, let us understand some of the major Open Banking initiatives in India, that lay grounds for more to come in 2021.
INDUSTRY/ GOVT LED INITIATIVES
The Account Aggregator concept has been in the market for a couple of years now. With more than three entities with the operational license to build the Account Aggregator system, namely One Money, CAMS Finserv, and Finvu, COVID has delayed the launch of their platforms in 2020. With no open information available in the market pertaining to the launch of these Account Aggregator platforms, early 2021 is just a mere expectation.
Account Aggregators will enable seamless Open Banking facilities by enabling customers consent to share their data digitally. With granular control on the consent i.e., which account information to share, for how long to share, or revoke the consent if the customer is unhappy with the new service provider. It is expected that the BFSI domain will entirely rely on Account Aggregator services which are compliant to regulations building around Consumer Data Protection, to share or receive the data securely and digitally. The digital transfer of information will enable faster turnaround time from the BFSI service providers and serve the customers faster and better. Account Aggregators are the key to the transforming Open Banking initiatives in India and the network of the participants is going to be a massive one. With the higher focus on customer-centricity through the consent-driven approach, and a collection of digital services available at the request of one-click through Account Aggregators is the model that Open Banking services from banks in India will scale up to.
The new-age financial inclusion in India which will democratize the credit-starved population of India is the Open Credit Enablement Network (OCEN). The traditional model has failed to provide the credit solution for the population in India that needed it the most. This public innovation framework is going to work in close association with Account Aggregators with an aim to bring large-scale innovation and integration capabilities into lending platforms.
In hope to provide loans to borrowers in a timely manner with the help of Technology-driven Open APIs that will put the borrower in the proximity of not just one, but a network of lenders. OCEN systems emphasize the use of technology to reduce the gaps in gathering documents and digital disbursement of the loans, to serve the new customers better.
OCEN will empower open banking capabilities to individuals and MSMEs with the help of a standardized set of APIs that can effectively plugin the lending capabilities, into their current products and services. The impact of OCEN, the Open lending model, is to provide a universal language for lenders in the market to scale and build innovative financial credit products. With the ease of systemized lending, there is a greater chance of improved competition in the lending segment, offering loans at lucrative interest rates to the customers in need of it. The future of OCEN will pan out bringing large-scale global players into the Indian Lending Market. OCEN will ensure lending partners be a regulatory compliant structure that will bring in innovation, customer centricity, and new investments into the market. This would reduce the credit gap in the market, leading to improvements in the lifestyle and business capabilities of the customers.
The Data Empowerment and Protection Architecture (DEPA) puts every citizen of India in the driving seat w.r.t their data. DEPA aims to bring democracy into consumer data space and the service providers, involving the use of standardized technology architecture. DEPA supports a secure, interoperable, and privacy-respecting framework for data sharing through Consent artifacts, data sharing through Open API, and a standard for Financial information. Consent Artefact will be based on ORGANS principle (Open, Revocable, Granular, Auditable, provide Notice, and maintain Security by design), to empower adoption of standards for data storage and processing techniques.
DEPA’s data governance concept in the new age Open banking system will ensure that the customers have complete control over their data. This will help them explore the financial product offerings and will bring Fintech players into the market ensuring innovation and competition.
DEPA is focused to improve customer confidence in the financial services offered in the market and aims to improve customer participation in a secure way. Like the CDR in Australia, aiming to include all public services into the Data Protection, similarly, DEPA has the capability to spread across into various public services industries. Tighter data privacy laws could mean peace to customers and the firms requesting the data must implement advanced infrastructure, to safeguard the data from the customers.
Public Credit Registry (PCR) is a repository initiative by RBI
that will put together the data of individual and corporate borrowers (new and existing). The idea is to maintain the credit history, outstanding loans, repayment history of the borrowers, ancillary data like overdue utility payments, or tax payments data from tax authorities, and other primary data in a single large database.
PCR aims to reduce the information asymmetry of the borrowers to the lenders in the market, giving the lenders a 360-degree view of the credit history of the customer. PCR will also ensure that the. The credit history of the customer is available to all the lenders, to evaluate the risk and creditworthiness of the customer. The result of the risk and credit worthiness evaluated will not only improve the businesses to mitigate risk but also provide the choice for the customer i.e., to choose and compare the lenders and their services. TCS and Dun & Bradstreet have been identified as the bidders at the forefront, with a pending technical evaluation from RBI.
PCR will reduce the information asymmetry in the market which in turn is focused to improve the business conditions. The open repository will ensure that the lenders have an account of the individuals, corporates, SME’s and MSMEs on loan outstanding, repayments, loan exposure, collateral including the incoming cashflows, helping the lenders reduce bad debts. PCR will also ensure the monitoring of the microfinance industry, improving transparency in the market. Though there are heaps of initiatives ahead to be implemented, for the PCR to get Operational, there is a lot it can bring to the table to both customers and lenders to ensure a win-win proposition. With the Open API technology, OCEN and PCR, the lending industry is due for massive reforms that can transform the outlook of the industry.