Open banking ushering in a new world of opportunity

The retail sector is facing the severest competition from the online segment, with the latter causing a dramatic impact on footfall and sales.

‘Open banking’, wherein trusted third parties will be able to access a consumer’s banking data, has opened up a whole new world of opportunity for retailers, one that goes beyond mere marketing or advertising.

Open banking is the opening up of bank financial data, with consumer consent, to third parties, and is fundamentally changing the retail banking landscape across the globe.

In India, too, open banking has made its presence felt through the government’s Unified Payments Interface (UPI).

“We need banking, we don’t need banks. Almost 20 years later as we visit Bill Gates’ vision of a technology-enriched future of banking, we discover it is still a little way off,” Nishad Ramachandran, Senior V-P, Digital Experience Group, Hansa Cequity, told BusinessLine .

“A piece of legislation is making way in the UK that will mandate banks to share historic customer data that they have held on to for reasons of privacy, security and competitive advantage,” he points out.

The joint UK and EU directive, which forces the nine biggest banks to give customers control over their data, came into force on January 13, 2018. Even as it opens up the financial sector, banks big and small, fintech companies, and the retail sector are coming to grips with the opportunities that lie ahead.

Open banking draws its momentum from regulation and governmental drive. Examples include the Payment Services Directive 2 (PSD2) in Europe, the Open Banking Working Group in the UK, and the UPI in India.

UPI is a payment system developed by the National Payments Corporation of India (NPCI) that allows money transfer between two bank accounts by using a smartphone. It also enables a customer to pay directly from a bank account to different merchants.

Like taking an Uber, wherein consumers can hail a cab, get to their destination, and get payments done seamlessly in one app. Or buying products on online retailer BigBasket, where products can be chosen, added to the shopping cart and then checked out either via the wallet or through an online banking transaction.

Open banking involves opening up application programme interfaces (APIs) to third parties, who can use the shared consumer data to create innovative products and services.

A recent survey by Accenture found 74 per cent payment executives stating they would use ‘open banking’ to access customers’ financial information so that they could tailor products, with retailers keen to generate offers and discounts based on consumer spending habits.

“The Indian banking customer, who is enjoying world-class customer experience across sectors like retail, entertainment, ride hailing and travel, can look forward to the best in banking and fintech services,” says Hansa Cequity’s Ramachandran, adding: “Using secure APIs, any fintech company will, with the permission of the customer, be able to access his financial information from any bank for mutual benefit.”

Bengaluru-headquartered PhonePe, a payment company, has recorded over 65 million installs, as well as a high number of merchant UPI transactions in India.

Recently, the company announced a strategic partnership with redBus, an online bus ticket booking service. It has also become the first digital payments app to enable credit card bill payments and provide a seamless experience by teaming up with Visa, the global leader in digital payments.

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