Page 48 - Banking Finance February 2025

ARTICLE

Traditional Banks and Open Banking: Enhanced Customer Experience

The basic premise of open banking revolves around the Open banking allows fintech companies to provide unique
ownership of customer data, with customers rightfully and customer friendly products and services to the
owning their financial information instead of it being customers, highly improving the customer experience. To
possessed by banks, which simply collect and store the data. enhance customer experience, banks worldwide are now
This shift has given customers the freedom to choose collaborating with Fintechs to offer personalized and unique
applications through which they want to conduct their products, services, and propositions. The data that banks
financial transactions. Initially, open banking caused unease possess serves as valuable input for Fintechs equipped with
for traditional banks as they had to share customer data AI and ML capabilities to provide deep insights into customer
with competitors, who were using it to sell their products/ needs. An instance of this partnership is the integration of
services and it is evident that third-party apps utilizing open chatbots into banking services.
banking APIs are gaining ground over traditional banks due
to their more streamlined, structure and focused approach. Today in India, all major banks have chatbot facilities for their
customers. For instance, SIA, the chatbot of State Bank of
In India, as of April 2024, third-party apps such as Phonepe
India developed by Payjo, a Silicon Valley and Bengaluru-based
(48.87%), Google Pay (37.5%), and Paytm (8.30%) hold a
fintech company can handle more than 10,000 queries per
significant market share for UPI payments.These apps
second. Chatbots have proven to be useful in providing instant
collectively hold nearly 95% of the total market share for solutions to customer queries with 24 x 7 availability. Online
UPI Payments.
lending market place created by SIDBI in collaboration with
Nevertheless, many banks have adapted to this shift and OPL a Fintech i.e. www.psbloanin59minutes.com has served
begun innovating their products and services either more than 7 lac plus MSME customers disbursing more than
independently or in collaboration with other FinTechs to Rs 74000 crs by partnering with 20 plus banks. The portal
enhance customer experience and expand offerings. Open serves as on open marketplace allowing customers to chose
banking has spurred significant developments in lending, a bank if its choice to avail loan specifically for MSME
investment, and payment spaces. segment.

Opportunities for Traditional Banks in New Revenue Stream
Embracing Open Banking Open banking can be used to create new revenue streams
for banks by generating profits and offsetting potential
losses due to data sharing. One method for generating
revenue is to form partnerships with FinTechs to offer
innovative products or services. Banks may open up as a
market place allowing fintech to pitch for their products
directly to the customers. For example, Niyo Global-a fintech
specializing in international payments-has collaborated with
many banks such as DCB Bank and Equitas Small Finance
Banks.

Banking as a Service, where banks offer their infrastructure,
allowing FinTechs using open APIs to connect with the bank's
database and provide banking-related services to their
customers is also a way to generate revenue for banks.

Banks using the account aggregator services and combining
it with their database can create individual customer profile
and create personalized products and services, which can
Figure 2: Opportunities for Traditional Banks in Embracing help in increasing the customer engagement and sales of
Open Banking the product.

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