Page 50 - Banking Finance February 2025

ARTICLE

Disintermediation Threat their market share, they must take a lead in adopting to
One of the biggest threats that banks face with open banking open banking and rethink their business models to be able
is disintermediation. With customers being owners of their to respond to dynamically changing technologies. However,
own data, there is a high chance that customers might opt to ensure widespread adoption by customers, it is crucial to
for any third-party application for their financial needs such develop robust data protection measures, standardized APIs,
as payments, lending, and investment solutions. Hence and clear consent mechanisms to safeguard customer data.
disintermediation or bypassing, results in loss of business for Furthermore, educating consumers about the benefits of
banks which are then rendered as only basic financial service open banking and promoting transparency will be crucial in
providers. It is crucial for financial service providers and building trust.
banks to take the competition head-on by providing
innovative products and services to compete with FinTechs Conclusion
and other financial institutions and also to remain relevant Technology has consistently made life easier for people,
in the long run. especially in the financial sector, by enhancing access to
financial services. In the last decade, we have seen some of
Regulatory Challenges and Compliances the disruptive innovations by fintech companies, which have
Open banking has just started to gain ground around the changed our lives for the better. Open banking is one such
world, major challenges that financial institution and third platform that allows the use of technology to provide a wide
party providers have is to ensure compliance and range of solutions to customers, opening up the entire
interoperability in cases where they are working in different spectrum of financial services and offerings. Open banking
geographies with different regulatory guidelines. has led to the adoption of more innovative products and
services by banks in order to keep up with fintech companies,
Regulators encounter challenges in managing the evolving through partnerships or in-house development. Open
technology landscape while ensuring that both financial banking has the potential to disrupt the technology in the
institutions and third-party providers take effective financial world. We have seen solutions that have reached
measures to prevent potential breaches or thefts, when the last mile to provide financial inclusion and services which
sharing customer data. couldn't have been thought earlier.

It is for the regulators to instill confidence among customers Open banking is a win-win situation for banks, customers,
regarding safety and security of their data and also promote and FinTech companies, it is likely to be the theme for next
a whole hearted adoption of open banking by traditional decade and a space to watch out.
banks. Regulators have to tread a very fine line in order to
ensure compliance and also support innovation. References:
https://bfsi.eletsonline.com/open-banking-opening-
Customer Liability and Greivences Redressal: pathways-for-digital-banking/ (Cover Image)
With multiple parties involved in open banking model, https://blog.syzgroup.com/slow-food-for-thought/what-
grievances related to customer liability arising out of is-open-banking-and-how-can-traditional-banks-benefit-
fraudulent transactions or misuse of data are also needed from-them (Figure 2)
to be addressed, so that defaulting party can be identified https://timesofindia.indiatimes.com/blogs/voices/open-
along with necessary recourse for the customer losses arising banking-the-future-of-financial-services/
out of these incidents. This is of prime importance for the Open Banking in India (Remarks by Shri M. Rajeshwar
success of open banking and wide spread acceptability of Rao, Deputy Governor, Reserve Bank of India -
open banking. Wednesday, April 14, 2021 - in a webinar on Open
Banking organised by Tata Consultancy Services (TCS) in
The way forward association with the Embassy of India in Brazil).
Moving forward, we should expect increased collaboration https://www.business-standard.com/finance/news/upi-
between fintech companies, banks, and regulators to create transactions-cross-100-billion-mark-in-fy24-clock-131-
more personalized solutions for customers to satisfy their billion-124040100655_1.html.
financial needs. For traditional banks to sustain and grow https://rbi.org.in/Scripts/PSIUserView.aspx?Id=34..

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