Page 33 - Banking Finance December 2023

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opportunities for collaboration and partnerships
between financial institutions and fintech companies.
By leveraging the strengths of different players in the
ecosystem, institutions can create innovative new
products and services that benefit customers.

5. Increased Competition: Open banking has the potential
to increase competition in the financial sector by
lowering barriers to entry for new players. This can lead
to greater innovation and lower costs for customers.

Overall, these opportunities highlight the potential of open
banking to transform the financial sector and create value
for all stakeholders involved. By embracing open banking
and leveraging its potential, financial institutions can protected and that there are adequate safeguards in place.
enhance their competitiveness and deliver better outcomes By mandating the use of open banking APIs and the Account
for their customers. Aggregator framework, the RBI is promoting competition
and innovation in the financial sector, which is expected to
RBI guidelines and framework for open lead to better products and services for customers.

banking in India
RBI concerns on open banking in India
In November 2020, the RBI released a draft framework for
open banking in India, which mandated that all banks must While open banking presents many opportunities, it also
implement open banking APIs by 2022. The framework also poses several challenges. Here are some of the key
provides guidelines for the governance, security, and challenges associated with open banking that the Reserve
customer consent requirements for open banking. The RBI Bank of India (RBI) has expressed
has also established the Open API Framework, which provides 1. Access to Banking Infrastructure: One of the key
a standardized approach for banks to develop and share APIs challenges for open banking in India is access to banking
infrastructure. While larger banks have the resources
with third-party providers and it has mandated that all banks
must use the Account Aggregator (AA) framework for sharing to develop and implement open banking APIs, smaller
banks and fintech companies may not have the same
customer data with third-party providers.
capabilities. This could lead to a concentration of power
in the hands of larger players and limit the potential
The AA framework allows customers to consolidate their
benefits of open banking.
financial data from multiple accounts and share it with
authorized third-party providers. The RBI has also set up a
sandbox environment for testing open banking APIs, which 2. Regulatory Changes: The regulatory environment in
India is constantly evolving, and changes in regulations
allows banks and fintech companies to experiment and
could impact the implementation of open banking.
develop new products and services in a controlled
Fintech companies and banks will need to be agile and
environment. Further RBI has mandated that all open adapt to any regulatory changes to ensure compliance
banking APIs must comply with the Payment Card Industry
with the rules.
Data Security Standard (PCI-DSS) and must be audited by
an external auditor. 3. Technology Readiness: Implementing open banking
would require a robust, agile, and scalable IT
These guidelines and frameworks provide a clear and architecture to enable API integrations with multiple
standardized approach for banks and fintech companies to entities. This means moving from monolithic
develop and share APIs, ensuring that customer data is architecture with CBS at its core to a micro-service-

30 | 2023 | DECEMBER | BANKING FINANCE