On the core, the enterprise of banking is straightforward – borrow cash at decrease rates of interest and in flip lend the identical at greater rates of interest. The distinction in these charges is what banks make as cash. Whereas this can be a simplistic means of trying on the banking enterprise, different vital facets corresponding to underwriting, gathering and danger administration make it fairly complicated.
As an business, banking, globally, has gone via two massive revolutions within the final century. The primary was the regulation of banking within the US within the Nineteen Thirties on account of the Nice Melancholy – which has continued to evolve over time with the final main set off being the 2008 International Monetary Disaster. India, too, has gone via phases of nationalization, liberalization and privatization with a reasonably strong regulatory regime in place right this moment.
The second – the extra vital and continuous revolution has been the technologization of banks. On this entrance, the Indian banking business has made speedy strides within the final three many years and has arguably attained pole place globally right this moment with the explosion of the API economic system.
The Indian Tech Story of Banking
The financial liberalization of the 90s noticed Indian banks discover the usage of expertise in banking operations. This was largely restricted to banks with core banking options – which revolved round processing banking transactions i.e., deposits and loans. With most of those processes carried out manually earlier than, expertise backed core programs elevated the pace of processing transactions multifold.
The knowledge expertise revolution of the 2000s and the impetus supplied by the IT Act of 2000 noticed the biggest banks within the nation embrace core banking options – thereby serving clients at scale and processing massive volumes of transactions. In brief, the productiveness, profitability and effectivity of banks considerably elevated.
Digital Cost Options
The subsequent decade and a half, till 2016, noticed huge disruption and main innovation within the client cost area. Playing cards led the primary set of cashless cost devices with debit and bank cards turning into mainstream – which compelled banks to develop and improve their present core banking options. It additionally noticed the introduction of ATMs.
The foremost turning level throughout interval was the rise of digital pockets fintech companies. Whereas this era was brief with the appearance of the United Funds Interface (UPI) – which has nearly worn out the digital pockets ecosystem in India – it noticed the introduction of Software Programming Interfaces (APIs) in banking expertise stacks.
Digital pockets fintechs needed to combine with core banking programs to retailer cash and course of funds – which banks have been hesitant to. So as to accrue the advantages arising from the penetration of digital wallets, banks developed frameworks to solely share cost associated providers via APIs. The end result was a sturdy integration mechanism between two events – banks and fintechs – the place banks, now, didn’t have to fret about exposing their complete core expertise programs to fintechs, and then again, fintechs bought entry to particular providers, and components of core banking programs to energy their cost merchandise. The UPI, which has revolutionised digital funds in India, can also be constructed on comparable API frameworks.
The Explosion of the API Financial system
The corollary to this phenomenon was a stark realisation amongst banks to leverage the ability of APIs to supply different obtainable merchandise of their suite to fintechs. Banks right this moment provide core products-such as financial savings accounts, FDs, bank cards and different allied merchandise like demat accounts and insurances within the type of APIs to fintech companions. The advantages of this are clear – banks get further consumer acquisition channels at a lot decrease prices, and the power to scale considerably will increase. Fintechs, then again, purely deal with delivering distinctive consumer experiences that banks have historically fallen again in.
This symbiotic relationship is on the core of the multitude of fintech-bank partnerships within the Indian ecosystem we see right this moment – whether or not it’s within the type of neobanks, challenger bank cards, purchase now pay later (BNPL) merchandise, pocket insurances, new-age funding merchandise, P2P lending and many others.
Indian banks have achieved a outstanding job in being nimble to construct and expose their APIs to grasp the benefits of scale, and enhanced supply and repair. Nonetheless, some banks are but to affix the bandwagon of the API economic system and develop their API suites. It’s nevertheless clear that banks that present API suites for all merchandise, can make the most of the fintech revolution, broaden their enterprise footprint, and can turn into the leaders within the coming decade.
Views expressed above are the writer’s personal.
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