These are very happening times for the largest democracy in the world with elections in full swing and multiple financial events lined up like the Regulatory Authority of the country (RBI) coming out with their vision for Payment and Settlements 2019-2021 which was indeed very enterprising as it promises to make the country a cash-lite society. We also had Niti Aayog (Transforming Committee of India) proposing a significant 7500-Crore plan for Cloud Computing and Artificial Intelligence push which includes establishing “AIRAWAT” a cloud computing platform for promoting research on AI. It certainly is a step in the right direction, given the changes that we are seeing in the world around us and it was time that we started work in this direction.
In between all these announcements and happenings, there was one more proposal published by Niti Aayog but not much was written or said about this maybe because it was just an idea. The proposal was to end Data Monopoly and make data available to all, in other words, move the financial system towards Open Banking, which brings us to some very important questions like the following: –
Who owns customer data which as of now is lying with a few big monopolies who act as custodians of data. The banks or any other entity stores customer data for their own use, and this is exactly what the proposal by Niti Aayog wants to change and to make data available to anyone who would be able to use the data to carve out a better deal for the customer because ultimately it is the customer who should be owner of their own data.
What is Open Banking? It basically is creating a Data Architecture where a network of institutions can share the data through APIs (Application Programming Interfaces). The data architecture is used to create guidelines on how customer data can be created, structurally stored and securely accessed. If this happens it would open the doors to a lot of innovation and entrepreneurship opportunities and at the same time benefitting the single most important entity and that is the Customer. As a country, India has more than a thousand fintech firms which are growing at a significant growth rate and as per estimates, we are looking at somewhere around $73 billion worth of transactions in 2020 which corresponds to more than 20% growth rate from where we are today.
We would certainly not be the pioneers in walking the path to Open banking as there are quite a few countries/continents which have already started their journey like the implementation of PSD2 across Europe, with the UK having their own version of Open Banking with specific standards. In U.S. big banking entities have come together and are working on the idea of sharing data within their own network. Countries like Australia have already come out with CDR (Customer Data Right) and are well on their way to implement Open Banking, so it is just a matter of time where we will be having no option but to do it.
Analytics and AI are already changing the way we are looking at data and today every organization wants to be known as a data-driven organization. Analytics is slowly turning to be among one of the core competencies of every organization and we have a lot of fintech startups which are working on cutting edge technologies but are hampered by right data not be available to them. Open Banking will certainly be the enabler as in essence, it will provide access to insights on how the data can be used to launch new products and provide benefits by taking a holistic view of the data rather than keeping it confined to the prerogative of chosen few.
Predictive Analytics which is already struggling to establish a pattern on customer behaviour and providing insights due to lack of available structured data can re-model themselves with open banking and our big banks can play a leading role by taking advantage of the computing power that they already have and combining it with the data being made available by creating new propositions for the customer and in return making the customer much more profitable and loyal to them. We would also see a lot of new entrants in analytics which would be nimble footed and are waiting to challenge the big banks in their own turf which would, in turn, make these big banks be on their toes to ward off any upcoming challenge by innovating or partnering with them.
All and all a winning proposition for everyone and mostly to the Customer who would finally get the right benefit of his or her own data.
But as we all know with great powers comes great responsibility and with such huge and sensitive data, we will need to have proper guidelines and standards to protect the privacy of the customer. It would not only be restricted in making the customer click the small checkbox at the bottom or Rules and Regulation page but would mean properly making the customer aware of how the data is going to be used and responsibility will completely lie with the entity using the data.
All said in a few years if we as a country must survive and promote innovation we will have to walk with the world and implement the changes, not after everyone has done but along with everyone and with the way things are moving, we certainly are in the right direction.
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Sudhish Nair works as a Consultant with a leading Banking and Financial (BFSI) Software company.