Open Banking Project Report

A
BUSINESS DISSERTATION
ON
“OPEN BANKING SYSTEM IN INDIA – A FINTECH REVOLUTION”
Submitted to
SCHOOL OF PETROLEUM MANAGEMENT,

PANDIT DEENDAYAL ENERGY UNIVERSITY,
GANDHINAGAR
IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE AWARD OF
MASTER OF BUSINESS ADMINISTRATION
UNDER THE GUIDANCE OF

Dr. Akash Patel
Professor, SPM-PDEU
Submitted by
Priyanka Chugwani
[Batch: General Management, Enrolment No: 20205035]
MBA (General Management) 2020-22
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DECLARATION
I, Priyanka Chugwani, student of MBA Batch 2020-22, School Of Petroleum Management,

Pandit Deendayal Petroleum University, Gandhinagar hereby declare that the Business
Dissertation entitled “Open Banking System in India: A Fintech Revolution” is a result of
my own research work and our indebtedness to other work publications, references, if any,
have been duly acknowledged. I shall be solely responsible for any plagiarism or other
irregularities, if noticed in the thesis.
I assert that the statements made and conclusions drawn are the outcome of my own research
work. I further declare that to the best of my knowledge and belief that the Business
Dissertation does not contain any part of any work which has been submitted for the award of
any other degree/diploma/certificate in this University or any other University in India or
Abroad.
Place: Gandhinagar Signature:
Date: 9 March 2022 Name of Supervisor: Dr. Akash Patel
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PLAGIARISM DECLARATION
I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that it is
one’s own. Dissertation has significant new work / knowledge as compared already published
or is under consideration to be published elsewhere. No sentence, equation, diagram, table,
paragraph or section has been copied verbatim from previous work unless it is placed under
quotation marks and duly referenced. I have used a recognized convention for citation and
referencing. Each significant contribution and quotation from the works of other people has
been attributed, cited and referenced.
The thesis has been checked using <Turnitin> (copy of originality report attached) and found
within limits as per PDPU Plagiarism Policy and instructions issued from time to time.
I certify that this submission is my own work. I have not allowed and will not allow anyone
to copy this work with the intention of passing it off as his or her own work.
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TURNITIN ORIGINALITY REPORT
4
CERTIFICATE
I certify that the work incorporated in this Business Dissertation titled “Open Banking
System in India: A Fintech Revolution” submitted by Priyanka Chugwani was carried out
by the student under my supervision/guidance. To the best of my knowledge: (i) the student
has not submitted the same research work to any other institution for any degree/diploma,
Fellowship or other similar titles (ii) the Business Dissertation submitted is a record of
original research work done by the student during the period of study under my supervision,
and (iii) the Business Dissertation represents independent research work on the part of the
student.
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PREFACE
This business dissertation report has been submitted as a part of course curriculum, in the
partial fulfillment of degree of Master of Business Administration at School of Petroleum
Management, Pandit Deendayal Energy University, Gandhinagar.
The report documents the research work that I undertook as part of this dissertation subject
The title of the dissertation is “OPEN BANKING SYSTEM IN INDIA- A FINTECH
REVOLUTION”
The entire report is the reflection of findings that I have gained from completing my business
dissertation. This work was mentored by my guide Dr. Akash Patel.
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ACKNOWLEDGEMENT
I would like to take this opportunity to thank all who contributed directly or indirectly in
preparation of this report because no great endeavor is successful and accomplished without
some helping hands. The task needs some guidance, encouragement and assistance for its
completion and fulfillment.
I hereby take this opportunity to sincerely thank my mentor Dr. Akash Patel for his constant
support and guidance during the business dissertation.
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TABLE OF CONTENTS
DECLARATION .................................................................................................................. 2
PLAGIARISM DECLARATION .......................................................................................... 3
TURNITIN ORIGINALITY REPORT .................................................................................. 4
CERTIFICATE ..................................................................................................................... 5
PREFACE ............................................................................................................................. 6
ACKNOWLEDGEMENT ..................................................................................................... 7
INTRODUCTION .............................................................................................................. 10
RESEARCH PROBLEM .................................................................................................... 10
LITERATURE REVIEW .................................................................................................... 11
OBJECTIVE OF THE STUDY ........................................................................................... 12
OPEN BANKING ............................................................................................................... 13
OPEN BANKING- EVOLUTION IN INDIA .................................................................. 15
REQUIREMENTS TO OPEN BANKING ...................................................................... 19
OPEN BANKING INITIATIVES IN INDIA ................................................................... 20
OPEN BANKING V/S BANKING AS A SERVICE (BAAS) ............................................. 23
BANKS ADOPTING OPEN BANKING IN INDIA ........................................................ 25
NEO BANKS IN INDIA ................................................................................................. 25
OPEN BANKING PLATFORMS IN INDIA ................................................................... 28
Cashfree ....................................................................................................................... 28
YAP ............................................................................................................................. 29
Open Credit Enablement Network (OCEN) .................................................................. 30
THE INDIA STACK: KEY FEATURES ............................................................................ 32
THE INDIAN OPEN BANKING MODEL ..................................................................... 33
KEY TENETS OF OPEN BANKING ................................................................................. 39
TRENDS IN OPEN BANKING .......................................................................................... 44
RISKS ASSOCIATED WITH OPEN BANKING ............................................................... 46
OPEN BANKING OPPORTUNITY IN INDIA .................................................................. 49
FUTURE OF OPEN BANKING ......................................................................................... 50
FUTURE TRENDS OF OPEN BANKING IN INDIA ..................................................... 52
NEW ROLES EMERGING IN AN OPEN CREDIT ECOSYSTEM FOR INDIA ............... 53
CONCLUSION ................................................................................................................... 55
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REFERENCES ................................................................................................................... 56
TABLE OF FIGURES
Figure 1: Banking Cloud ..................................................................................................... 13

Figure 2: An OB ecosystem................................................................................................. 14
Figure 3: Traditional Vs Open Banking Mindset ................................................................. 17
Figure 4: Open Credit Enablement Network ........................................................................ 31
Figure 5: Open Banking Design Choices ............................................................................. 33
Figure 6: Benefits of Open Banking APIs ............................................................................ 41
Figure 7: Significant milestones enabling the shift to Open Banking ................................... 50
Figure 8: Key considerations and action for banks ............................................................... 51
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INTRODUCTION
Over the past ten years, India has seen an ambitious overhaul of its digital infrastructure
through the development of the so-called “India Stack”. Banking ecosystem of India has seen
unprecedented changes in terms of delivery and product in the last few years. It has moved
from a traditional product centric, inside-out approach, to a consumption based, outside-in
approach. Pioneered by BFSI players like Yes Bank, Kotak bank, DCB bank, etc., the Open
Banking ecosystem has now grown to include NBFC and other tech players who have created
partnerships within the system.
Open Banking has now become a part of the Indian financial services and fintech segment.
Open banking typically means the system of allowing access and control of consumer
banking and financial accounts through third-party applications. India’s foundational
approach based on the provision of extensive public infrastructures and standards has set the
Indian approach apart from many other open banking and broader data policy frameworks
implemented around the world.
In India, AA acts as an intermediary between Financial Information Provider (FIP) such as

bank, banking company, non-banking financial company, asset Management Company,
depository, depository participant, insurance company, insurance repository, pension fund
etc., and Financial Information User (FIU) which are entities registered with and regulated by
any financial sector regulator. The flow of information takes place through appropriate
Application Programming Interfaces (APIs). The Open Banking System is expected to see a
46% by 2026.
RESEARCH PROBLEM
The statement problem of this research is- “How the Open Banking Systems have impacted
the banking sector in India and what is the future of Open Banking Systems in India while
focusing on the opportunities and risks associated with this fintech revolution?”
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LITERATURE REVIEW
The main objective of the paper is to identify the impact of Open Banking Systems in India
on the Indian Banking sector, to focus on the upcoming opportunities and the risks associated
in this field and the future of Open Banking Systems in India. To identify the possible
outcomes, the author has referred previous papers and thoroughly analyzed possible
outcomes from the papers for analyzing the impact and the risks and opportunities associated
with Open Banking Systems. The review of papers examines role of Open Banking Systems
in the Banking industry which will be covered in this project for clear understanding of the
system. The future of the banking industry is dependent of the digital revolutions that impact
this sector and there are studies on this sector studying the impact, opportunities and risks
associated with implementation of Open Banking Systems. Finally, the review provides what
is the future of Open Banking Systems in India.
Over the years, the value of data has reached unprecedented levels. Countries, globally, are
empowering customers with access to institutions of their choice while jurisdictions are
witnessing various approaches to open banking strategy and implementation based on
regulatory favorability and industry maturity. FIs also have realized that they are now
custodians and not owners of data and are trying to move to alternative revenue streams after
receiving customer consent.
As FIs start formulating the strategy to adopt and implement open banking, a critical
consideration is to first have a clear view of the potential benefits and then gauge internal
capabilities and determine areas that require capability building. This would include
technology readiness, people readiness, and cost considerations. Further, addressing customer
concern areas would be a key factor—A Deloitte survey indicated that cyber security and
data protection are the top concern areas across all age groups, followed closely by caution
towards third-party access to data and transparency on data usage.
With the onset of COVID-19 and the focus towards digitization, the next 12-24 months will
see a significant shift towards open banking amongst Indian FIs. Companies will invest in
building core capabilities to address customers’ immediate needs.
As FIs move forward with ideation, implementation, and rollouts, they are likely to face
multiple challenges, including integration with legacy systems and data/risk management.
FinTech, however, believe that several integration issues could be resolved if there is a
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supporting regulatory framework for API standardization, guidelines for establishment of
sandbox facilities and liability rules and assigning ownership in the event of financial loss,
erroneous sharing and loss of sensitive data between the bank/NBFC and third parties.
Regulator involvement would also mean that the banks would be more open to sharing
customer data with the FinTech.
The development of the India Stack has implemented open banking principles of competition
and contestability through interoperability and data sharing in the financial sector. By
bringing in a diverse range of banks and non-banks together under a common infrastructure,
this architecture has potentially facilitated financial inclusion, as evidenced by the increase in
high volume-low value payment transactions. The overall structure of publicly provided
digital infrastructures has scope to support the provision of many financial services and to
further deepen financial inclusion and development. The entry of new and efficient payments
providers could in principle increase competition for existing financial intermediaries, given
that fees derived from payments can be an important source of income for existing banks.
Future research will need to consider the implications of these technological developments
for competition, market structure and financial stability and efficiency trade-offs in financial
sectors around the world, including in India. The potential of the infrastructure provided by
the India Stack could extend far beyond finance. As a broader data policy framework, the
confluence of the four layers described in this paper form the basis for a competitive and
inclusive digital economy, in which individuals exercise meaningful control over their data.
The data fiduciary model is of general interest as an approach that could operationalize
control of personal data by the data subject, facilitating data sharing while preserving privacy.
The operations of the recently approved account aggregator fiduciaries will be interesting to
watch as the scope of data classes is expanded to non-financial data, including in health
services.
OBJECTIVE OF THE STUDY
1. To analyse the impact of Open Banking Systems on the Banking Industry.

2. To identify the trends, opportunities and risks associated with Open Banking Systems.
3. To find out the future trends and growth of Open Banking Systems in India.
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OPEN BANKING
OB describes a special kind of financial ecosystem. The ecosystem provides third-party

financial service providers open access to consumer banking, transaction, and other financial
data from banks and nonbank financial institutions through the use of application
programming interfaces (APIs). It is governed by a set of security profiles, application
interfaces, and guidelines for customer experiences and operations. Ecosystem-enabled
banking means that there are not predefined direct relationships or “supply chains” of
financial products and services. Rather, the flow of debits and credits between these products
and services are executed at the discretion of the customer (see Figure 1).
Figure 1: Banking Cloud
OB can be thought of as “finance as a service,” a form of software as a service (SaaS). In

Figure 1, the banking cloud is a collection of banking entities, configured as a cloud and
delivering micro and macro financial services via SaaS using conforming APIs. Financial
microservices include deposits, withdrawals, payments, debits, credits, and more; macro
services include loan origination and payoff, mortgage origination, and the like.
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Within the Open Banking Cloud in Figure 1, there are clouds that represent one or more
financial institutions that participate in the OB ecosystem (see Figure 2).
Figure 2: An OB ecosystem
OB is consistent with a cashless economy with digital payments but requires banks to let
down their walls and share information with third parties. This democratization of data forces
banking entities to make proprietary data available to anyone with the owner’s permission to
access it.
In OB, banking entities interact with each other via API at the customer’s direction and can
offer best of breed services on an a la carte basis. With a larger available set of services,
customers can personalize from more suitable and cost-effective products. For example, a
customer could choose one banking entity’s savings account service, another banking entity’s
checking account service, another’s credit card, another’s auto loan, and another’s mortgage
product, and funds could be moved seamlessly through all of these services. Dashboard tools
could be used to perform various transactions, aggregate information for analysis and
optimization, set activity alarms, and so on.
Aggregated accounts enable new insights and enhanced speed, convenience, and simplicity of
transactions. OB also makes it easier for smaller players to enter into the financial services
industry, which can increase competition and reduce anticompetitive activities.
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OPEN BANKING- EVOLUTION IN INDIA
Open Banking in India has moved quickly in the last few years, and 2021 can indeed be
considered The Year of Open Banking. This movement was visible across government
initiatives, the launch of scalable Open Banking initiatives by banks, decent traction by
multiple neobanks, funding & scale up of multiple Banking-as-a-Service platforms.
With Banking-as-a-Service gaining significance, most prominent institutions and upcoming

ones are setting full-scale units for BaaS and digital banking with clear revenue and customer
engagement targets. There is distinct movement on hiring as well as training the resources for
this service. Open Banking is providing newer opportunities to develop business models like
B2B2C or B2B2B or B+B2C and other combinations instead of straight business models like
B2C or B2B.
Key changes in the last 12 months
Government technology (IndiaStack)
The government continues to revolutionize the fintech ecosystem through the introduction of
government supported frameworks like:
Aadhaar Authentication
 Aadhaar e-KYC, E-Sign

 IMPS, AEPS, UPI
 JanDhan (Almost every adult has a bank account)
 GST
 TReDS
 Government e-Marketplace
 Psbloansin59minutes
 Lending enablement framework (OCEN in progress)
 Data Empowerment and Protection Architecture (DEPA).
The government would continue to support the ecosystem through these initiatives, which
provide potent rails for Open Banking to grow. The Personal Data Protection Bill expected to
be enacted shortly would bring immense clarity to the market.
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Regulatory movements: RBI has set up the Reserve Bank Innovation Hub, which will
engage with the ecosystem to remove the friction in the market. RBI has also changed KYC
policies in May 2021, which will help onboard digitally MSME customers and reduce the
friction in Re-KYC. RBI has also given strong messages around Open Banking, digital
lending, tokenization (powering payments), public credit registry (likely to launch soon),
which is helping in reducing customer risks while bringing business enabling framework to
the players.
Launch of Account Aggregator Platform: After a long pause of nearly five years, Account
Aggregator Platform was launched in September 2021 with all key banks like ICICI Bank,
HDFC Bank, Axis Bank, Kotak Bank joining as an Financial Information Provider (FIP) as
well as Financial Information User (FIU). With multiple account aggregators and technology
service providers aggressively pushing the ecosystem, we believe that almost 99% of bank
accounts would come under the framework in 12 to 18 months. This will help the Financial
Information User in improving credit underwriting, wealth management, cross-selling etc.
Deepening of API banking platforms by banks: API Banking in India started with Yes
Bank and RBL Bank taking the lead in 2017. Most significant players like ICICI Bank, Axis
Bank, Kotak Bank, and Smaller Players like SBM, AU SFB, Equitas SFB have now
established comprehensive API banking platforms. With broader adoption and increasing
support by Bank’s Boards, we believe that in the next 12 to 18 months, ten more banks will
launch their API banking platforms. Multiple banks are building their Open Banking Strategy
with focus on monetization of APIs with multiple business partnerships.
Transformation of multiple payment / lending fintechs into neobanks: Due to lack of

revenues in payments and lack of engagement in lending, we have seen numerous prominent
players moving towards neobanking like Razorpay, Niyopay, Myshubhlife, Chqbook, etc.
These players are deeply engaging with their banking partners and widening the use-cases
with time.
Bigtechs: Bigtechs like Google, Flipkart, Amazon, Whatsapp started their journey in banking
in India through Wallet and UPI (the world’s biggest real-time payment platform). They have
now begun innovating through newer services like Google launching fixed deposit opening in
partnership with Equitas Bank. There is also a deeper partnership on the Cards and BNPL
side developing between banks and bigtechs. Given the traction of bigtechs in the market, we
believe that many fintechs / Open Banking platforms would be acquired by them, thereby
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accelerating the Open Banking ecosystem. We also see regulatory oversight to bring more
clarity on potential issues in the context of bigtechs.
Figure 3: Traditional Vs Open Banking Mindset
Embedded Finance: Beyond the bigtechs, we have seen multiple startups in edtech, agritech,
ecommerce, mobility focusing on embedded finance in an aggressive way. Many of these
players like Ola, Udaan, Stellapps have already established the business model and are
working closely with Banks and NBFCs to scale the business. This is helping the startups in
improving customer journeys, gaining access to customer data, increasing customer lifetime
value and creating new revenue lines. We are seeing verticalization of finance, wherein
traditional financial activities (paying, borrowing, insuring, investing) are getting customized
to the needs of each industry vertical.
Launch of multiple neobanks: This year, we saw launches by multiple retail neobanks like
NiyoX, Jupiter, Fi.Money supported by massive campaigns through television ads. They have
started acquiring customers at a decent pace, and with deep pockets, they are likely to grow
faster than most banks in India. The revenue model for retail banks currently looks a bit scary
as there is minimal margin in the payment business, and banks can’t share deposit revenues
with the neobanks.
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We see a different journey for retail and SME neobanks in India. Retail neobanks will move
from primarily ‘Youth and Mass focused’ to more differentiated segments. Many of these
new initiatives would close down due to a lack of differentiation and monetisation
opportunities. They would find it challenging to build business as they would compete with
larger all-in-one apps (PayTM, PhonePe) as well as digital banks (like Kotak and DBS).
Larger retail neobanks with massive funding will do well due to leadership quality, access to
more considerable funds, and ability to sustain growth.
We believe that SME neobanks like Open would continue to grow with more niches coming
up like exporters, importers, industry-focused – say steel, ecommerce merchants. These
startups would also face intense competition from SME neobank initiatives of major banks
like HDFC Bank, ICICI Bank, SBI, etc.
Entry of international neobanks: Tide and Revolut have entered the Indian market and are
working on partnerships with banks to launch their neobanks. They are expected to bring
international practices as well as cross-border capabilities to the market. We believe that in
the next 12 to 18 months, multiple international players will enter India through acquisition
of Indian Neobanks or through greenfield implementations.
Enlarged funding rounds: Investors have invested heavily into neobanks like Jupiter,
Fi.Money, Bank Open, Flobiz, and Banking-as-a-Service platforms like Setu, Zeta, NIUM,
Yap. Even early-stage players are getting decent funding rounds, which is likely to positively
impact this segment’s growth. We believe that as many of these Neobanking players turn into
Unicorns in next three years, there are possibilities of acquisitions of banks these players.
Currently, multiple Indian banks are valued below a billion dollars and there are distinct
opportunities to improve them through acquisitions.
Talent & Organization Readiness: There is clear dearth of talent with experience digital
and open banking, which is impacting the growth. Banks are collaborating with Digital
Specialists to train their internal resources through long term interventions. They are also
relooking and rebuilding their organization structure to align with Open Banking & Digital
Business instead of just Brick & Mortar Business. Nearly 100,000 new roles are getting
opened up across levels and verticals to support the change.
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REQUIREMENTS TO OPEN BANKING
OB requires legislation, API-standard cooperation by financial entities and consumers, and a

high level of cybersecurity and trust. The Open Banking Implementation Entity was
established in 2016 to help deliver open banking in the United Kingdom. Under the
auspicious of its competition and markets authority, an OB standard was developed. Version
3, released in 2018, defines the following four core components of OB:
 API specifications
 security profiles
 customer experience guidelines
 operational guidelines.
Each of these is described in the following paragraphs.
API specifications are one of five types:
 Read/write API specifications: These describe a collection of RESTful API, which

uses HTTP requests to access and use data to enable third-party providers perform
various functions.
 Open data API specifications: These allow API providers to develop API endpoints,
which can be accessed by API users to build applications for banking customers.
 Directory specifications: These provide information regarding how the OB directory
works, and the roles and functions of various participants.
 Dynamic client registration specifications: These define the APIs for third-party
providers to submit software statement assertions to account servicing payment
service providers.
 MI reporting specifications: These describe management information reporting of
account servicing payment service providers to OB.
Security profiles cover both redirect (requiring the customer’s interactions with the third
party and the API provider to take place on the same device and platform) and decoupled
(allowing the customer to authorize a consent request on different devices and platforms, or
at a different time) flows. These are based on the Open ID Foundation’s financial-grade API
(describing security provisions for the server and client that are appropriate for financial-
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grade APIs) and client-initiated backchannel-authentication profiles (supporting decoupled
interactions).
Customer experience guidelines describe the processes customers follow in an OB-enabled

app or web service so that they use the services only if they feel “informed, secure and in
control.” The goal is to balance regulatory requirements and customer insights.
Operational guidelines aim to support account servicing payment service providers’ request
for an exemption from providing a contingency mechanism. A checklist can demonstrate that
account servicing payment service providers have delivered a dedicated interface that have
the attributes and functionality to drive competition and innovation.
OPEN BANKING INITIATIVES IN INDIA
Globally, open banking regulatory frameworks are structured to enable third party access to
customer-permissioned data, requiring licencing or authorisation 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.
India has kickstarted its approach to Open Banking by enabling an intermediary which will
be responsible for the customers' consent management. These intermediaries are licensed as
Non-Banking Financial Companies. In September 2016, RBI announced creation of a new
licensed entity called Account Aggregator (AA) and allowed them to consolidate financial
information of a customer held with different financial entities, spread across financial sector
regulators. In India, AA acts as an intermediary between Financial Information Provider
(FIP) such as bank, banking company, non-banking financial company, asset management
company, depository, depository participant, insurance company, insurance repository,
pension fund etc., and Financial Information User (FIU) which are entities registered with
and regulated by any financial sector regulator. The flow of information takes place through
appropriate Application Programming Interfaces (APIs).
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The transfer of such information is based on an explicit consent of the customer and with
appropriate agreements/ authorisations between the AA, the customer, and the financial
information providers. Data cannot be stored by the aggregator or used by it for any other
purpose. Explicit and robust data security and customer grievance redressal mechanisms have
been prescribed and the Account Aggregators are not permitted to undertake any other
activity, primarily to protect the customers’ interest.
CONSENT BASED ARCHITECTURE
The emphasis of regulatory framework for account aggregators in India is thus on explicit
customer consent for data sharing. No financial information of the customer is to be retrieved,
shared, or transferred without the explicit consent of the customer. The other tenets of this
open banking initiatives in India are - financial data integrity, security & confidentiality,
robust IT governance & controls, and strong customer protection & grievance redressal
mechanism. Further, in order to facilitate seamless movement of data & consent-based
sharing of financial information in the AA ecosystem, a set of core technical specifications
have been framed by Reserve Bank Information Technology Private Limited (ReBIT), a
wholly-owned subsidiary of the RBI for adoption by all regulated entities, acting either as
Financial Information Providers (FIP) or Financial Information Users (FIU) in November
2019.
In order to protect critical financial information of users and to enforce a mechanism for
obtaining proper consent from customers, the consent of the customer to be obtained by the
Account Aggregator shall be a standardised electronic consent format as prescribed under
regulations. The AA is required to inform the customer of all necessary attributes to be
contained in the consent format and the rights of the customer to file complaints. The
customers are also provided a functionality to revoke consent post which a fresh consent
would have to be obtained. Explicit onus has also been placed on Financial Information
provider (FIP) to verify – validity of the consent, specified date and usage of it and the
credentials of the AA.
Different jurisdictions have taken a different approach on the issue of Open Banking. While
some have adopted a prescriptive approach, requiring banks to share customer-permissioned
data and requiring third party users to register with regulatory authorities, others have taken a
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facilitative approach by issuing guidance and recommended standards, and releasing open
API standards and technical specifications. Some jurisdictions also appear to be following a
market-driven approach, currently having no explicit rules or guidance.
The AA is a regulatory initiative in India under a hybrid model which is a combination of

prescriptive & facilitative approaches and is in its early stages of development. One of the
key things to look out for is whether the market forces will drive the adoption of this
initiative or further regulatory nudge will be required. The pace of adoption will also depend
on the strength of the community to come together and continue to drive the technical
specifications standards and scalability potential.
Now, to continue with the tradition of a central banker and regulator, let me also enunciate
few risks and spread some words of caution along the way.
Regulatory guidelines and policies Regulation In INDIA: Personal Data Protection Bill,
2019, for protection of personal data. The Information and Technology Act of 2000 is India’s
primary cyber security law, but was last updated in 2008.
Regulatory approach:
 Market-driven approach, supported by the regulations from the Reserve Bank of India
(RBI).
 India Stack developed a set of APIs (Aadhaar, eKYC, UPI, Digi locker and eSign). •
For payment initiation, the National Payments Council of India (NPCI) launched the
Unified Payments Interface (UPI), which has seen an exponential increase in
adoption.
 The RBI has prescribed Account Aggregator (AA) guidelines on permissible activities
and API specifications. Market readiness and the current state
 India witnessed a surge in the FinTech space, particularly in payments, owing to an
increasing adoption of digital payments by customers.
 Financial institutions have taken active steps to educate the customer, invested in
increasing distribution, and offered rewards to drive customer behaviour.
 Account aggregation use cases are expected to scale up.
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OPEN BANKING V/S BANKING AS A SERVICE (BAAS)
Open banking is like BaaS since it likewise rents banking administrations to non-bank
associations. Nonetheless, two models are made for various purposes. While BaaS permits
firms to offer unadulterated financial items by means of their interface, open financial awards
admittance to customers' information (with their assent) without moving financial capacities.
Open banking is a piece of the open development model. It shows up with the development
of innovation and changing mentalities towards responsibility for information. With the
arrival of PSD2, banking information is presently accessible through open API, which
launches the ascent of new fintech drives productive for specialist organizations, designers,
and clients.
BAAS USE CASES
Neobanks show a genuine illustration of BaaS in real life. As a rule, they are not independent
associations yet add-ins on top of conventional banks. Neobanks utilize the full grown banks'
framework to give an updated finance insight. They bet on predominant help, lower charges,
and individual touch with each customer. Neobanks don't typically give huge advances or
take an interest in enormous monetary activities; all things being equal, they prevail in
different regions like momentary advances, fast stores, and organizations with notable
retailers. The above doesn't mean BaaS is just appropriate for the individuals who need to
make their custom bank. This model permits any variety of things to take care of banking
activities (like loaning or saving) through its interface.
For instance, in the event that you own a carrier, a café, or a retail shop, you may offer
marked check cards and award clients for utilizing them. You could likewise follow spending
conduct and utilize this information to further develop your showcasing methodology.
Another thought is to give an internet based advance for the acquisition of your labor and
products. This would assist you with raising client steadfastness and assemble brand
certainty.
OPEN BANKING USE CASES

To figure out how open financial functions and how it contrasts from BaaS, we should take a
gander at an ordinary use case. You are likely acquainted with finance applications that
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examine expenditures, plan a spending plan, and change financial conduct overall. Such
applications don't continue banking items yet give totally unique UX. Well known elements
are, for instance, financial assessment rating, P2P moves, getting a handle on information
from numerous money accounts, and so on Such applications don't permit you to open a store
or get a credit however award important experiences into the current monetary state.
PLATFORM BANKING USE CASES

Today there are numerous instances of stage banking, and you will most likely see a couple
on the off chance that you open a banking application introduced on your cell phone. Here
are common use cases:
 purchasing tickets for a transport, train, plane
 purchasing tickets for different occasions (shows, sports matches, and so forth)
 web based games installments
 altruistic commitments
 gift authentications
It is extremely helpful to have such administrations in a portable banking application since
they permit clients to play out all every day exchanges in a single spot without the need to go
to outsider locales or applications. On the off chance that you need a fresher thought
regarding stage banking, investigate the robo-counsels side.
Having them set up empowers clients to put resources into projects without leaving the
application.
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BANKS ADOPTING OPEN BANKING IN INDIA
Many Indian banks have come with their Open Banking API for fintech and third-party
developers. Therefore, fintech and neo banking financial institutions can build an application
using open banking API to provide the best user experience.
 Kotak API Banking: Kotak Mahindra Bank introduced API Banking in 2019 using
open-banking technology. It developed its Open Banking API that allows fintech 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 banking sandbox consists of more than 50 APIs that act
as an enabler for fintech and third-party developer.
 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 data.
NEO BANKS IN INDIA
Neo Banks have been operating in the international market such as the US and Europe for
quite some time now and have catered to an unbanked section of the society. Neo banks are
like any other banks, but the only difference is their end to end services are digital. While
some banks have started their own neo banking platforms, several startups have collaborated
to a banking licensee to launch such digital startups.
According to a report published by Allied Market Research, the global neo bank market is
growing at a CAGR of 50.6 per cent during the period 2017-2020. Sheetanshu Upadhyay,
BFSI Research at Allied Market Research in the report shares that digital challenger banks
are simplifying the financial world, creating a customer-centric approach to services, and
transforming the way banking is viewed by the public and the market.
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“In return, they endeavour to deliver larger returns on equity as compared to those offered by
prominent traditional banks. They strive to offer greater flexibility when it comes to lending
through streamlined operations and costs,” he added.
With open banking emerging in India, fintech and banks collaborating at a various
wavelength and the RBI focusing on digitalization and financial inclusion, neo banks have
started to make their presence felt.
Here are five neo banks in India:
NiYO
NiYO offers digital banking solutions for salaried employees across sectors. Presently, it
claims that the fintech startups cater to over five lakh customers and has partnered with 3000
corporates.
Last year, the startup launched a global card cancelling the need to buy a forex card during
international trips. Earlier last month, it collaborated with Upwardly, a tech-enabled financial
advisory startup, to provide investment solutions for its customers.
During the launch of the service, NiYO Co-founder and CEO Vinay Bagri in a statement
said, “Financial inclusion has always been at the core of our business. We believe this will go
a long way in helping both our existing and new customers manage their short-term and long-
term financial needs.”
The neo bank has also raised a little over 14 million from Prime Ventures and other investors.
811 by Kotak
811 is a digital bank account product by Kotak Mahindra Bank.
The product was launched in March 2017 and is named after the day demonetisation was
announced in India – November 8, 2016.
It is a zero maintenance bank account, along with a virtual card and one can also earn a 6 per
cent interest per annum on their savings.
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Within two years of the launch, the bank claims to have doubled its customer base to 16
million users.
Open
Open was founded in 2017 by Anish Achuthan and Mabel Chacko with the idea to serve the
underserved within the SME segment. After a year of piloting, the neo-bank launched its
services partnering with ICICI Bank and presently has almost 11 banks as partners. Open has
also crossed around USD 4 billion of analyzed transactions revenues on the platform.
Commenting on the scope of neo banking, Achuthan said, “Neo- banking is not just about
financial inclusion, it's also about bundling banking services with other financial services. So
in India, neo banking can work as an extension to solve for the financial inclusion challenges.
Secondly, we are seeing fintech start-ups build niche solutions focusing on blue collar jobs
and that’s the way forward.”
The startup has raised $5 million as Series A round led by Beenext, Speedinvest and 3one4
Capital.
Yono by SBI
YONO (You Only Need One) is State Bank of India’s digital banking platform which was
launched in November 2017. Apart from banking services, the platform also provides
lifestyle services like cab booking and online shopping.
Last month, for YONO users, launched a cardless cash withdrawal facility using. The process
can be initiated using the mobile app and using a six digit pin. Once the process is initiated
from the phone, you can visit any of the SBI’s ATM which is marked as YONO Cash and
withdraw within 30 minutes of receiving the reference number on your mobile phone.
The country’s largest lender is looking to acquire a customer base of up to 250 million using
this platform in the next two years
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InstantPay
At the beginning of FY20, InstantPay launched its neo banking solutions targeting to the
SMEs sector. The platform will help SMEs manage their payments, collections and financial
requirements on a single interface.
While launching the service, Shailendra Agarwal, CEO of InstantPay, said in a statement said
"Driven by favourable government policies and flexible banking institutions, SMEs are
increasingly contributing to the development of our country as well as offering employment.
Our banking solution is designed to address the unique requirements of SMEs. It does away
with the hassles of traditional banking process & policies and provides a seamless and user-
friendly experience."
The fintech startup has raised INR 3.4 crore as seed round from Kaleden Holdings and RB
Investments Pte. Ltd.
OPEN BANKING PLATFORMS IN INDIA
Some open banking API examples include:
Cashfree
A lot of third party fintech players offer financial services to businesses and
enterprises. Cashfree uses APIs to provide enterprise-friendly solutions to businesses that
are tailored to their industry needs. For instance, Cashfree offers bank transfer services and
payouts as a service for business bank accounts.
In fact, these payout services are a strong alternative to Enet HDFC and other such corporate
banking platforms. Cashfree offer 100% online onboarding with dedicated account managers.
Moreover, this platform uses API for 100% automation and easy reconciliation. Cashfree’s
instant payment feature and instant beneficiary addition feature is popular among businesses.
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YAP
YAP is a next-generation open banking API platform. It offers debit and credit cards, prepaid
accounts, UPI payments, and cross-border remittances through AI-driven APIs.
Banks integrating their APIs can develop and build their own branded financial instruments
catering to specific customer needs.
YAP is the leading API infrastructure company that helps businesses connect and roll out
their own branded products. The company works with banks and financial institutions as
product providers. It offers end-to-end program management services over a bundle of
APIs that covers Bank Accounts, Term deposits, and a wide gamut of payment products,
including Debit, Credit, Prepaid, Travelcard, QR, UPI, NETC toll payments.
To date, 300+ businesses across Fintech and financial institutions have leveraged YAP’s
platform. Their API products have been utilized by top tech companies such as OLA,
CRED, PaisaBazaar, RazorPay, BankOpen, Finin, and others. The modular mobile-first
API platform is backed by leading Banks and allows companies to develop, test rapidly,
iterate their own branded debit, credit, and prepaid offerings.
Global Presence
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Open Credit Enablement Network (OCEN)
Open Credit Enablement Network (OCEN) was launched on 22nd July 2020 to reimagine the
digital lending flow in India. Loan Service Providers (LSPs) leverage the standardized APIs
to create new types of loan offerings.
The protocol will help bridge the credit gap present due to the traditional lending setup.
OCEN is a framework of APIs for interaction between lenders, loan service providers (LSPs),
and account aggregators.
OCEN was launched as an open protocol infrastructure that will mediate interactions between
LSPs such as FinTechs and e-commerce players and mainstream lenders such as banks and
NBFCs. OCEN provides a standard set of tools representing the various components of a
typical lending value chain, allowing apps, marketplaces, and aggregators, among others, to
‘plug in’ lending into their current operations.
Under the new credit rails, OCEN will act as a common language connecting lenders and
marketplaces to use and create innovative financial credit products at scale.
Here are the pain points addressed by OCEN:
 Identification of creditworthy borrowers

 High cost of borrower acquisition
 Costly and time-consuming custom integrations and manual processes to connect
customers with lenders, especially for marketplaces
 High turnaround time to get loans deposited into customers’ accounts
 Implementation challenges that restrict launch of custom financial products
 Limited reach of credit to MSMEs in India. Only 11% of the 63 million MSMEs have
access to formal credit.
 Need for complete lending value chain skills under one entity. Here are some
examples:
 Sourcing
 Identity verification
 Underwriting
 Capital arrangement
 Disbursement
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 Dispute management
 Payments
 Recollection
Figure 4: Open Credit Enablement Network
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THE INDIA STACK: KEY FEATURES
As discussed in the introduction, the India Stack contains four layers of digital infrastructure
that have been introduced gradually over the last decade. The first is the “presenceless layer,”
featuring the Aadhaar digital ID system that allows for identity verification and for the
mapping of information across datasets. The second is the “cashless layer,” built on the
Unified Payments Interface’s interoperable payments system. The third is the “paperless
layer,” which allows for the verification of digital documents that can replace traditional
paper analogs. The fourth is the “consent layer”—which is on the cusp of becoming fully
operational—that will involve the operation of data fiduciaries that act as intermediaries
between individuals and financial companies. These fiduciaries will be charged with facilitate
the aggregation of individuals’ financial data across their accounts at multiple financial
institutions, and sharing that data with interested third parties subject to the individual’s
consent.
The first two layers of the India Stack—which have been in operation together since 2016—
make up the interoperable payments system that characterizes the core of open banking
systems in other jurisdictions. The fourth layer will introduce the sharing of customer data
that is held by each financial institution and financial service provider. Later in the paper we
will argue that this final layer may be particularly transformative given the synergies it will
gain from the success of the other layers.
How does the Indian approach to open banking compare to the designs that have been
implemented in other countries? Table 1 offers a comparison to several jurisdictions that have
implemented or are in the final stages of preparing their open banking frameworks, including
Australia, European Union, and the United Kingdom. Regulated data sharing subject to user
consent exists in several of these jurisdictions. There is considerable variation across
countries in terms of the data classes that must be shared, with some countries including a
very narrow set of traditional bank account data, whereas others have added information
about other products such as mortgage loans and credit cards. In the case of Australia, the
Competition Authority that is directing the open banking initiative plans to expand the
perimeter of data classes to include energy and telecommunications accounts.
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Figure 5: Open Banking Design Choices
While no single aspect of the India Stack is entirely unique, it strikes us that the key
differences of the Indian approach are: (i) comprehensiveness, in the sense of the stack
seeking synergies across multiple infrastructure layers; (ii) introduction of a centralized
digital ID that has helped millions of people get an ID for the first time and that allows for e-
KYC verification, (iii) introduction by the public sector of standards and open APIs
facilitating (but not mandating) interoperability of payments, and (iv) operationalization of
consent for user data sharing by data fiduciaries in finance and, eventually, in other sectors.
THE INDIAN OPEN BANKING MODEL
Digital ID (Aadhaar)
The introduction of low-cost digital ID has facilitated a large expansion in the user base, and
this has been crucial for the success of open banking in India. The ubiquity and low cost
arising from both technology and the fact that a self-declaration is all that is required to
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establish an identity could be appealing to other developing jurisdictions. The combination
with biometrics and the fact that the UPI does not require access to a smart phone may also
be appealing to many jurisdictions, as technological exclusion across income and age
characteristics is common around the world (e.g., older populations may not be comfortable
using smartphones to access mobile banking).
Aadhaar has been an important part of delivering more efficient KYC. While a physical
meeting is typically required to open an account at a financial institution, the process can be
greatly expedited, and subsequent verification of transactions is easy and quick with Aadhaar.
Thus, in principle it seems that a system of digital ID can go a long way to reducing the costs
of complying with KYC requirements andgiven the strength of the unique biometric ID, is a
more robust solution to establishing identity than other more traditional means. However,
even with digital ID, the establishment of beneficial ownership in a ML/TF and tax base-
shifting context remains a challenge.
Around the world there has been concern with the scale of digital ID provision under the
auspices of the central government and the potential for its use in applications that infringe on
individual rights for privacy. An interesting feature of Aadhaar’s governance is that the
UIDAI is a separate body under the Government of India. Could the establishment of an
independent government agency with a mandate to manage identity separate from the other
interests of the state be a way forward? This has been the subject of litigation in India and the
Supreme Court has established limits on the mandatory use of digital ID and affirmed the
individual right to privacy, which is reflected in the development of modern data privacy
legislation currently before parliament. This suggests that to successfully implement such a
stack-based approach, there is a need to have a modernized privacy framework.
Payments (UPI)
In order to participate in the UPI system, fintech firms are required to operate, either through
an institution with a banking license, or by obtaining a special payment bank license that
would bring them within the financial regulatory perimeter. The key difference between a
payments bank and a full bank license is that the former’s activities are restricted mainly to
acceptance of demand deposits and provision of payments and remittance services. Keeping
all participants in the payments system within the regulatory perimeter allowed the RBI to
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promote financial inclusion while fulfilling its objective of ensuring the system’s stability and
resilience.
The design has proven sufficiently flexible to facilitate entry of a large number of new tech-
based payment service providers into the UPI, increasing competition and user choice. A
question that arises is whether the compliance costs associated with being regulated as a type
of financial intermediary acts as a barrier to entry for smaller service providers, thereby
reducing competition in favor of existing intermediaries, many of whom are state owned
banks, or large bigtech competitors. Arguably, this is a matter of balance between stability
and efficiency. In principle the payments landscape in India should be poised for greater
competition, supported also by a commitment that that participants in UPI not charge
consumers for use of the system in the first few years (Google Payments, 2019). However,
there are some concerns that while inter-operability has increased contestability and
facilitated entry by diverse actors into UPI, the inherent network scale advantages of bigtech
providers could allow them to acquire a dominant position in the market.
A crucial feature of the payments system layer of the India Stack is the RBI’s support for
interoperability, which in principle sets the stage for a more competitive payments landscape.
The public sector (through the NPCI) developed an open API standard and UPI defined a
payments markup language that standardized instructions for sending and receiving money
within the system. Entrants were invited—but not mandated—to utilize the public
infrastructure drawing on this standard. To facilitate peer-to-peer payments RBI also helped
to develop payment aliases, and helped banks agree to a common authentication system. The
RBI facilitated the provision of extensive technical support to merchants and the design
aspects of the UPI to include third-party technology players.
Interoperability of the payments system has been operational ized through open APIs,
available to banks and to fintechs who set up payments banks or leverage links to existing
banks. This has set the stage for greater competition in the provision of a broad range of
financial services that leverage data collected via the payments interface. While other
jurisdictions have accommodated a range of fintech payment providers, not all are fully
interoperable, which limits the scale of activity that can be achieved and creating an
advantage for data-rich bigtechs, who leverage large existing platforms and networks. By
contrast in India, it is possible for a user to transfer funds across accounts at different
providers—from a wallet issued by one provider to another user’s wallet issued by another
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provider—instantaneously. The combination of licensing and open systems has therefore in
principle set the stage for a more competitive financial services landscape than might have
otherwise arisen given the strong economies of scale inherent in payment networks, though as
noted above the jury is still out on how the relative effects of inter-operability and network
scale will play out and whether further policy action will be needed to support competition.
Furthermore, risks of open-API architectures for cyber-security highlight the need to consider
policies to ensure adequate investments by regulated entities in protecting data security and
individual privacy.
Data sharing
A key challenge of data policy is to ensure that access to personal data is handled according
to the preferences of the individuals it affects. Some jurisdictions have taken a rights-based
approach to individuals’ control of personal data. In the European Union, the General Data
Protection Regulation (GDPR) is a prime example establishing the obligations of the data
controller and processor to ensure that the rights of the data subject are respected as data is
transferred for analysis and value extraction. In practice, the approach has involved the
controllers issuing GDPR compliant checklists for data subjects to complete in order to gain
access to services.
The India Stack’s approach to the control of data is more operational. The “fiduciary”—in the
current state of the stack a “financial data aggregator” —has the responsibility to manage the
subject’s data and rights and seek consent for data processing. In doing so the fiduciary may
not access or store the data being shared, but will be allowed to charge fees to offer the
service. This limit on access to the subject’s data by the fiduciary marks a very different
approach than in other jurisdictions, where aggregators offer their services in exchange for
access to the data that can be used to offer other financial services. In principle, the Indian
approach should better align the interests of the fiduciary with that of the subject. Moreover,
this limited data aggregation role should facilitate operational compliance with India’s
incipient privacy framework while allowing a wide class of service providers to gain access
to the financial data of consumers and businesses.
In addition to being a consent manager, the fiduciary can also be thought of as a trust engine
that is powered by the multiple layers of the India Stack. This is accomplished by completing
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several links. First, the fiduciary can authenticate the subject using their digital ID. Second,
the digital ID offers a mechanism for generating trust that the data is indeed that of the
subject. Then, the fiduciary uses digital ID to link to the third layer of the stack, mapping
individual identity to the veracity of digital documents laying out the data subject’s financial
assets, liabilities and cashflows. This allows the fiduciary, combining these layers, to
essentially assure third parties of the provenance of the data subject’s identity, data and
documents underpinning their balance sheet. This is a powerful basis for establishing trust,
reducing the key friction of asymmetric information that impedes the offering of financial
services. If successful it should offer a package solution to third parties wishing to offer
financial services to data subjects, encompassing a model of management of data usage of
households and small businesses within the regulatory perimeter.
The rationale for ensuring that open banking involves interoperability is that the network
externalities in payments and data can then accrue to all users regardless of their provider,
precluding these being appropriated by individual institutions. A level playing field can be
provided by making data sharing reciprocal across financial service providers. This avoids
the concerns expressed in the EU, where PSD2 mandates that banks share extensive user
financial data with fintechs, who are not required to reciprocate by sharing their user data
with the banks.
The extent to which open banking frameworks can ensure a level playing field is determined
by the data classes that are included in data sharing schemes. In India, data sharing extends to
more classes of data than in many other jurisdictions, such as the EU and UK. While it will
initially remain limited to data concerning financial services, it is intended to expand to
insurance and health data. However, there remain level-playing-field concerns with bigtechs,
who will be able to obtain financial data from incumbent banks/fintechs, but will not have to
surrender non-traditional data such as social media or web browsing behavior, or location
data. These classes of data are outside the open banking data sharing perimeter, but can
nonetheless inform financial decisions such as credit assessments.
A final noteworthy feature of the Indian approach to open banking is that the perimeter of
data subjects is broader than in most other jurisdictions. Many open banking approaches are
focused on consumer data and their access to financial services. The Indian approach extends
this to include also small businesses, who can participate in the payments and data layers of
the stack and gain access to improved financial services and access to funding.
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Currently, a series of data aggregators have received regulatory approval from the RBI, but
the take-up of these services remains limited. It is worth noting that there are practical limits
to even fiduciary-based data sharing, as cross-country attitudes to data sharing with financial
intermediaries are quite variable (Ernst and Young, 2019). In the development of the system,
it will be crucial that aggregators operate in a way that builds and preserves the public’s trust
in their data management practices.
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KEY TENETS OF OPEN BANKING
Financial institutions and regulators must assess certain key considerations that serve as
pillars to a successful open banking ecosystem:
Data sharing:
Data sharing forms the basis for open banking. Open banking envisages secure sharing of
data, on the basis of customer consent, to various third parties for desired outcomes. Financial
institutions can monetise customer data, thereby creating an alternate source of income.
Regulatory compliance:
Regulatory authorities across jurisdictions have followed a differentiated approach in the

development and implementation of open banking. Financial institutions should ensure that
they are compliant with existing personal data protection, consumer protection, data sharing,
and cyber security regulations, as applicable.
• In a regulator-driven open banking ecosystem, financial institutions must implement

measures to adhere to additional mandated guidelines within the specified timelines.
This would assist the regulating authority in looking at new innovative propositions
for the ecosystem.
• In a market-driven open banking ecosystem, financial institutions must comply with

existing laws.
However, following leading global practices with respect to customer experience, operations,
and API specifications is a good-to-have practice.
Data privacy and cyber security:
Data protection is of utmost importance as customer trust, reputational risk, service adoption,
and market confidence, all hinge on the ability of a financial institution to manage data in a
secure environment. Institutions are facing an increasing number of cyber frauds and
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phishing attacks that bypass existing controls. Hence, they should attempt to inculcate cyber
security best practices for a secure mechanism to capture, share, and store data. Financial
institutions need to ensure that there are sufficient audit trails for every data transfer.
Partnerships:
Interoperability forms the premise of open banking. It includes banks and non-banks
developing capabilities to strategically leverage data, products, and services, to continually
innovate and better serve customers. Following certain standards with respect to security,
APIs, customer experience, and operations can also ease the process of forming partnerships
and ensure an end-to-end seamless user journey.
Customer experience:
Open banking not only provides customers greater control over their data, but also improves
banking experience as a whole through intuitive, easy-to-use channels that harness actionable
insights from their data to provide customer-centric products and services. Keeping the
customer at the centre would help build trust and increase adoption.
BENEFITS OF OPEN BANKING
Evolve with Customer Base

Every industry has to evolve its offering with time. The new customer base is more tech-
savvy and expects to have access to these financial products with their devices.
In fact, emerging economies like India and China have the highest numbers of fintech
customers. Interestingly, more than 50% of banking customers avail services of non-
traditional firms.
42.6% of the younger and tech-savvy audience use service of non-traditional bank and expect
to continue using them. Open banking APIs make it possible for this customer base to access
financial offerings by fintech players.
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Digital natives customers who are regular customers of companies like Amazon, Apple and
Facebook have come to expect instant gratification. As older generations also become
comfortable with technology, banks come under pressure to deliver experiences.
Positive Customer Experience

The main reason behind the growth of open banking APIs is increased innovation. These
positive strides in the fintech industry lead to higher levels of positive customer experience
than banks.
These fintech players can choose to focus on specific customer pain points. Consequently,
they can provide more customized and frictionless solutions. In fact, one-third of all banking
customers use services from at least one third-party provider.
Fintech firms have identified and created easy to use, relevant, and attractive, financial
offerings. Moreover, features like high security and the ability to scale lead to a positive
customer experience.
Figure 6: Benefits of Open Banking APIs
Increased Innovation
Fintech expertise can be leveraged by sharing financial data with third-party applications.
Banking processes can improve at pace while internal teams ensure service continuity.
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However, in the present scenario, fintech firms deliver a higher positive experience to
customers (57.8%) as compared to banks. (49.5%).
Fintechs use technology to revolutionalize financial processes. For instance, customers can
use APIs to add multiple beneficiaries at once instead of manual inputs prone to human error.
In fact, the correlation between better customer experience and a higher number of fintech
firms is evident. This trend is observable in fintech hotbeds countries like India, the US,
UAE, Netherlands and China.
Furthermore, facial recognition, chatbots and artificial intelligence have led to higher
customer engagement. It has led to the rise of conversational banking.
New Streams of Revenue

With the coming of open banking, banks will be able to monetize their APIs. This will lead to
new revenue streams. In fact, 43% of banks prefer a model where they charge a fee on every
API transaction. Both banks and fintech players have their strong points.
Banks have enormous funding capabilities and experience with operating large processing
networks. Moreover, they have huge customer bases and customer trust. On the other hand,
fintech players have a culture that gives importance to innovation, speed and customer
satisfaction. Together, both entities have a higher chance of generating shared revenue by
teaming up and using data effectively.
JP Morgan Chase provides an excellent example here. They teamed up with On Deck, a
fintech firm to provide loans to small businesses in a matter of hours. They used On Deck’s
proprietary credit score services.
Moreover, banks will benefit economically from third-party partnerships as they don’t have
to invest internal resources in technological development. In fact, API can help banks save
money as they have access to ready-made solutions. This can help banks in cost reduction
and also allow investment and profitability forecasts.
Banks can gather customer insights on financial requirements, buying habits and risk appetite
through collaboration. This will allow them to support multi-channel marketing and reduce
dependency on above-the-line spending. Resultantly, they can deliver new financial products
and increase revenues.
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Increased Scalability
Banks can decouple architectural components into blocks and then rejoin them through APIs.
This allows for greater resiliency and a highly independent yet scalable platform.
Moreover, this helps in reducing the cost of development as it helps switch to a federated
model instead of a point-to-point infrastructure.
Personalization
Fintech access customer financial data through open banking APIs to study trends and
patterns that can then be used to generate personalized financial products. They process the
information through artificial intelligence to improve customer engagement.
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TRENDS IN OPEN BANKING
Open Banking has been becoming a central theme of digital transformation in Banking and
Financial Services. Open Banking has led to the emergence of Neo Banks as well as
Challenger Banks, while at the same time, it has contributed to the growth of FinTech to
build new products & Services on top of Banking services. The growth and adoption of Open
Banking can be seen across the globe. Amid this growth, some notable trends in open
banking can be observed.
SMEs and Millennials across the globe opening up to adopt Open Banking: FinTech are
building services to open checking accounts for SMEs, Traders with ease of management,
multi-currency transactions support, Cross-border payments, etc. This becomes a good
proposition for SMEs to open an account with such FinTechesp. they are involved in
international trade. One example is Hongkong-based Fintech “NEAT,” which allows SMEs
to open checking accounts in a short time and start the business.
The transition of FinTech to fully managed banking services: FinTech typically have
focussed on one business line, be it payment, lending, wealth, insurance. Open Banking
facilitates integration with Banking services in partnership with Banks. These FinTech see
good potential to expand their business line on top of Open Banking, so FinTech across the
board are transitioning to banking services such as open & manage accounts, card-based
services, and other financial services offerings. Stash, well-established wealth tech firm
having an investment platform, now works like Bank. Stash recently hit the 1 million mark of
banking account customers on their platform. Stash has tied up with Green Dot Bank.
Accounting Firm FinTech go big on Banking APIs: This has been the initial significant
use case of Open Banking. SAAS-based accounting FinTech are best placed on integrating
banking APIs and enabling SMEs to manage banking and accounting from the same
platform. Bank Open, XERO has been notable FinTech in the accounting-based Neo Bank
platform. New entrants such as Ezo Banks and others also making good inroads.
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The emergence of Open Banking Platform to the main league: With Plaid acquisition by
VISA, and the recent acquisition of Galilio by SOFI suggests that these Open Banking
platforms or Data Aggregators have a big play in the progress of Open Banking. These
platforms provide ease of integrations on the plug-and-play model for Banks, FinTech to
hook on banking services and start the business.
Big Tech will go Big on Open Banking: Google has already announced checking account
services while Apple successfully launched Credit Card. Amazon has set its path clear on
launching banking services. Recently, Microsoft announced integration with Plaid platform to
directly fetch banking data to Microsoft Excel. The direction is clear where we are going to
see big tech companies will partner with banks & platforms to launch full-fledged banking
services.
The market will push for API Standards and Operability: Except for a few countries,
there has not been much push to standardize API specification and documentation. Notable
progress is from UK Open Banking, which has released technical standard documents while
Singapore has also launched an API Playbook with clear instructions of data standards,
security standards. Though, the same cannot be said uniformly across the globe. With the
broader adoption of FinTech services and the emergence of Neo Banks & Challenger banks
crossing borders, standardization of APIs specification is the need of the hour and will soon
be the reality.
Open Banking can transform banking services across the globe, and we would see a
significant transition in more use cases, better banking products, and efficient services driven
through such emerging trends in Open Banking.
45
RISKS ASSOCIATED WITH OPEN BANKING
Open banking may offer benefits in the form of convenient access to financial data and
services to consumers and streamlining some costs for financial institutions. However, it also
potentially poses significant risks and concerns around:
 Financial privacy and data security: In open banking frameworks, risks associated
with the loss or theft of personal data on account of poor security, data protection
violations, money laundering, and terrorist financing concerns cannot be ruled out.
Therefore, large scale adoption of open banking frameworks should ideally be
preceded by strong data protection and privacy laws. Such laws should anchor the
ownership rights and ensure control and consent-based use of the data. They should
also establish the boundaries of rights and obligations of third-party use, down-
streaming of data to fourth parties and reselling it. India has already embarked upon
the same and The Personal Data Protection Bill, 2019 has already been introduced.
The Bill seeks to provide for protection of personal data of individuals and establishes
a Data Protection Authority for the same.
 Customer liability: In absence of explicit arrangements for redressal of customer

grievances and limiting their liability in case of erroneous or fraudulent activity, the
acceptability of open banking frameworks may remain limited. Therefore, the
jurisdictions should look to address customer liability for third party access of data
through customer protection or indemnity laws. RBI has issued Charter of Customer
Rights in December 2014 which lists ‘right to privacy’ along with ‘right to grievance
redress and compensation’ among others. The right to privacy requires that
customers’ personal information should be kept confidential unless they have offered
specific consent to the financial services provider or such information is required to
be provided under the law or it is provided for a mandated business purpose.
 Cybersecurity and Operational Risks: Use of open banking architectures, which is

premised on the enhanced sharing of data, increases the surface area for cyber frauds.
As the open API provides uncluttered access to customer banking data such as
transactions and balance stored within the infrastructure, it may also pose a severe
46
cybersecurity risk. Losses caused to customers on account of cyber events would
require financial institutions to compensate customers for such losses. Institutions
may also face a variety of potential operational and cyber security issues related to the
use of APIs, including data breaches, misuse, falsification, denial of service attacks
and infrastructure malfunction.
 Compliance and Reputational Risk: While open banking expands vistas of

traditional banking and offers unique business opportunities, it also reposes extreme
responsibilities with respect to compliance with applicable prudential regulations and
privacy laws. Risks arise due to exposure to fines, penalties, or punitive damages
resulting from supervisory actions, as well as private settlements due to omissions and
commissions of the third-party service provider.
 Grievance Redressal: With more parties and intermediaries involved in the provision
of financial services in an open banking model, it is more difficult to assign liability.
If the regulations governing customer grievance redressals are not updated to take
open banking business models into consideration, the national authorities may find it
difficult to provide the customers adequate levels of protections. In India, RBI has
implemented a separate Ombudsman Scheme for Digital Transactions in January
2019. The number of complaints received under the Ombudsman Scheme for Digital
Transactions (OSDT) have been consistently increasing reflecting increased adoption
of digital modes of banking.
In addition to the above, open banking frameworks also present regulators with many
challenges. In open banking, there can be wide-ranging third-party arrangements such as
fintech firms, intermediary firms engaged in data aggregation and other service providers
which may not have a contractual agreement with the bank over which regulators can
exercise jurisdiction. Further, it may be possible that several of these firms may not fall under
regulatory purview of any financial sector regulator. In such situations, it may become
difficult for regulators to set requirements, specifications, and exercise regulatory
jurisprudence.
47
In many jurisdictions, including India, outsourcing arrangements for banks and other
regulated entities are covered under explicit regulations. Supervisors also have certain
amount of oversight over the third-party entities. If the relationships in the open banking
extend beyond the existing supervisory and regulatory perimeters, the enforcement of
standards and prudential policies may become difficult.
48
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 market size of around 3-4 million. However, due to
the ease of financial services offered by the open banking system, it is expected to grow by
46% between 2019 and 2026. India offers a wide range of opportunities for the neo banking
segment. Most 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
with around 600 million bankable populations.
49
FUTURE OF OPEN BANKING
Banks require a paradigm shift in viewing Open Banking as an opportunity to create more
diversified and differentiated value propositions (See Figure 2). This will ensure the bank’s
relevancy to its customers and avoid the potential of being obscured by aggressive new
competitors.
Figure 7: Significant milestones enabling the shift to Open Banking
Next steps for banks
The complex demands of Open Banking pose huge challenges for banks to ascertain and
implement suitable strategies to work towards creating an open collaborative platform. The
platform should seamlessly enable intermediaries to access data securely and develop
intuitive applications for customers.
50
Figure 8: Key considerations and action for banks
The challenge of legacy pull can be mitigated by a lightweight, robust, responsive and agile
middle office, in the form of a new and emerging core. This will effectively bridge ‘high
speed’ Open Banking requirements with ‘slow speed’ legacy foundation capabilities -
leveraging next generation messaging and storage capabilities including API, microservices,
cloud etc. Also, a robust API platform with pre-built stacks of APIs dealing with least
sensitive information for initial phases and comprehensive list of APIs for later phases can
help accelerate banks’ efforts.
51
FUTURE TRENDS OF OPEN BANKING IN INDIA
Data sharing is a significant factor focusing on equalizing the field for all the financial
entities for level participation. The government has already given a green signal to embracing
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.
52
NEW ROLES EMERGING IN AN OPEN CREDIT ECOSYSTEM FOR
INDIA
 Account Aggregators – The Reserve Bank of India published Account Aggregator or

AA technical standards in November 2019 to facilitate flow-based lending. 7 AAs
received in-principle approval, and ten major banks and NBFCs are in different stages
of integration, working toward the public launch. The AA framework is expected to
transform access to working capital credit for micro-enterprises, particularly when
bundled with OCEN APIs for lending.
 Sahamati – A non-profit collective of AAs created to operate the AA model in the

country. Sahamati will help FinTechs and entrepreneurs adopt public APIs and
become financial information providers and users.
 CredAll – A non-profit collective that enables cash-flow based lending. Its

responsibility is to ensure the implementation of OCEN and give access to the new
protocol to industry participants. It is responsible for stakeholder education,
publishing guidelines and principles, connecting TSPs with lenders and LSPs, helping
LSPs create business cases, and empaneling certification agencies.
 LSP – A Lending Service Provider can act as an ‘agent of a borrower,’ ensuring

transparency and safeguarding the borrower’s interest. It is a departure from a direct
sourcing agent (DSA). An LSP helps borrowers get access to formal, affordable credit
at low-interest rates and collaborates with lenders to create more tailored offerings for
borrowers.
 Sahay – Sahay is OCEN’s first rendition. Sahay app is ready to implement the
invoice-discounting use case, where a merchant can receive loans against outstanding
invoices. Merchants can sign up and get instant loans from lenders by providing their
GST identification numbers and bank details. Just as BHIM was the first reference
implementation for UPI, the first reference apps for OCEN will be Sahay GST and
Sahay GeM (government e-marketplace) apps.
53
 DEPA – Data Empowerment and Protection Architecture (DEPA) is a secure,
consent-based data-sharing framework to accelerate financial inclusion. DEPA plays a
crucial role in establishing AA data-sharing protocols. DEPA aims to empower
individuals to seamlessly and securely access their data and share it with third-party
institutions.
 Derived Data Providers and Underwriting Modelers – These players can map their
on-ground learnings with OCEN-extracted LSP data and provide relevant insights on
the underwriting process. They can even provide their analysis and credit scores.
54
CONCLUSION
The Indian Open Banking ecosystem continues to thrive with active support from the
government as well as the market. With the launch of Account Aggregators, API readiness of
banks & NBFCs, entry of multiple neobanks, intense funding, India has become a role model
for Open Banking Deployments globally. Indians are already using the power of Open
Banking (UPI / AEPS) daily and are likely to adapt to newer innovations without much
friction.
By 2027, nearly 40% of the business of digitally savvy banks would be through embedded
finance model (and neobanks) powered by Open Banking with ecommerce giants, social
media players, mobility leaders, food delivery platforms, fintechs, and other customer
engagement platforms. During this period, nearly 30% of businesses would be through their
digital platforms (competing with neobanks) like mobile banking, Internet banking,
Whatsapp banking.
55
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Sivathanu, B. (2019, July 1). An Empirical Study on the Intention to Use Open Banking in
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india/230370
Henry Stewart Publications. (2018). An open banking ecosystem to survive the revised
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A

“OPEN BANKING SYSTEM IN INDIA – A FINTECH REVOLUTION”

SCHOOL OF PETROLEUM MANAGEMENT,

PARTIAL FULFILLMENT OF THE REQUIREMENTS

UNDER THE GUIDANCE OF

MBA (General Management) 2020-22

I, Priyanka Chugwani, student of MBA Batch 2020-22, School Of Petroleum Management,

Place: Gandhinagar Signature:

Date: 9 March 2022 Name of Supervisor: Dr. Akash Patel

Place: Gandhinagar Signature:

Date: 9 March 2022 Name of Supervisor: Dr. Akash Patel

Place: Gandhinagar Signature:

Date: 9 March 2022 Name of Supervisor: Dr. Akash Patel

Figure 1: Banking Cloud ..................................................................................................... 13

In India, AA acts as an intermediary between Financial Information Provider (FIP) such as

OBJECTIVE OF THE STUDY

1. To analyse the impact of Open Banking Systems on the Banking Industry.

OB describes a special kind of financial ecosystem. The ecosystem provides third-party

Figure 1: Banking Cloud

OB can be thought of as “finance as a service,” a form of software as a service (SaaS). In

With Banking-as-a-Service gaining significance, most prominent institutions and upcoming

Key changes in the last 12 months

Government technology (IndiaStack)

 Aadhaar e-KYC, E-Sign

Transformation of multiple payment / lending fintechs into neobanks: Due to lack of

Figure 3: Traditional Vs Open Banking Mindset

OB requires legislation, API-standard cooperation by financial entities and consumers, and a

Each of these is described in the following paragraphs.

API specifications are one of five types:

 Read/write API specifications: These describe a collection of RESTful API, which

Customer experience guidelines describe the processes customers follow in an OB-enabled

OPEN BANKING INITIATIVES IN INDIA

CONSENT BASED ARCHITECTURE

The AA is a regulatory initiative in India under a hybrid model which is a combination of

BAAS USE CASES

OPEN BANKING USE CASES

PLATFORM BANKING USE CASES

NEO BANKS IN INDIA

Here are five neo banks in India:

811 is a digital bank account product by Kotak Mahindra Bank.

OPEN BANKING PLATFORMS IN INDIA

Some open banking API examples include:

Here are the pain points addressed by OCEN:

 Identification of creditworthy borrowers

Figure 4: Open Credit Enablement Network

THE INDIAN OPEN BANKING MODEL

Regulatory authorities across jurisdictions have followed a differentiated approach in the

• In a regulator-driven open banking ecosystem, financial institutions must implement

• In a market-driven open banking ecosystem, financial institutions must comply with

Data privacy and cyber security:

BENEFITS OF OPEN BANKING

Evolve with Customer Base

Positive Customer Experience

Figure 6: Benefits of Open Banking APIs

New Streams of Revenue

 Customer liability: In absence of explicit arrangements for redressal of customer

 Cybersecurity and Operational Risks: Use of open banking architectures, which is

 Compliance and Reputational Risk: While open banking expands vistas of

Figure 7: Significant milestones enabling the shift to Open Banking

Next steps for banks