Page 49 - Banking Finance February 2025

ARTICLE

Competitive Advantage and Increased The integration of open API applications has had a significant
Innovation. impact on boosting financial inclusion in India, allowing for
account openings through Video KYC (Know Your Customer)
By fostering partnerships with highly innovative FinTechs,
processes in addition to eKYC method. Another example of
banks can upgrade their existing offerings both in terms of
scalability is UPI, the total number transactions for the FY
products and services while creating a competitive 2023-24 done through UPI stands at 13.1 trillion.
advantage. Banks by carefully analyzing and understanding
the needs of their individual customers should on-boarding
a fintech who has expertise in providing the products or Risks Associated with Embracing Open
services. The key to gain competitive advantage is to become Banking
the first mover or be the first to offer the product or service.

To remain competitive banks today, need to act as a
financial marketplace providing all the financial products
and services on a single platform, like payment solutions,
investment solutions, insurance solutions, tax planning etc.

Open banking has also incentivized banks' increased
innovation efforts in providing technologically advanced
products counteracting challenges posed by FinTech
companies.

With changing time and technological boom customer
preferences have changed, leading to demand for services
in digital form as compared to brick and mortar. Customers
now prefer banks and financial service provider who are able
to provide them technologically advanced solutions for their
financial management.
Figure 3: Risks Associated with Open Banking
Increased Scalability
Open banking solutions are scalable since they are mostly Data Security Concerns
provided through applications or technological platforms Open banking allows access to sensitive customer data.
which can reach large numbers of people effectively. Fast- However, this data is at risk if the systems of the data-
paced internet technologies such as smartphones have accessing FinTechs are weak or not up to date, resulting in
further supported large-scale implementation. third-party risks. This may also lead to the risk of a data
security breach, resulting in the leakage of sensitive
customer data. Data leakage has serious consequences and
may lead to cyber fraud and privacy issues. Hence, it
becomes extremely important to establish security and
encryption guidelines before giving third-party applications
access to open APIs.

For open banking to succeed, customers must be assured
that they retain authority over their financial information
and strong security measures are in place to safeguard their
data and ensure that it is only accessed and utilized with
proper authorization both at the level of bank and third
party provider.

44 | 2025 | FEBRUARY | BANKING FINANCE