With real-time banking capabilities getting enhanced by Fintechs, it has led to higher visibility of cash flow making banking services more effective
Fintech, a combination of the words “financial” and “technology,” is a relatively new term that applies to any emerging technology that helps consumers or financial institutions deliver financial services in newer, faster ways than was traditionally available.
Everything from a consumer’s ability to go online and see their financial transactions to apps that allow you to pay friends to tools that allow financial institutions to make quick lending decisions are all part of the evolution of financial services. The ability for investors to do their own research, choose stocks and see their portfolio performance in real-time is also an example of Fintech in action.
A decade ago, RBI introduced NEFT and RTGS, followed by NPCI introducing IMPS. This was a start of digital or online banking and a paradigm shift in the way services were offered to the end consumer. The next stage of evolution was from internet banking to Application Programming Interface-led Banking.
The underlying need to move to API-led banking is to improve customer experience and improve the liquidity decision making of the customer. API banking holds out the promise to foster innovation and lower costs in a way that is more economical to serve the underserved and unbanked and offer products and services better suited to their needs.
Today, banks are convinced that in order to grow and extend banking solutions beyond their own banking channels and technology and in order to achieve true financial inclusion they need a strong partnership with Fintechs through APIs.
Today Fintechs are using API to retrieve account balances in real-time, processing transactions at high speed around the clock, providing enhanced information for reconciliation in real-time, process vendor and dealer finance transactions in real-time thereby facilitating faster churn in the ecosystem.
Banks will continue to be the custodian of the customer and various products and services without comprising security and compliance whereas Fintechs will be able to usher greater innovation, better technology creating a great customer interface leading to larger consumer adoption and Delight.
Understanding API banking
API traditionally pertains to the tech interface between software programs. This interfacing ability facilitates third-party applications for example Fintechs like PaySprint, to synchronise and connect to a bank’s tools and services.
API banking refers to a set of protocols that makes a bank’s services available to other third-party companies/Fintechs via APIs. This helps both banks and Fintechs augment their complementary specialities and offerings more than they can provide to their customers by themselves.
How API banking works
Over the last few years, APIs have become particularly significant to banks and Fintech companies. APIs provide better means to share data, integrate with systems, and personalise services, making financial services quick and efficient.
The same applies to banking.
Banks grant secured access to their financial services to Fintech platforms, helping companies build products around banking services. Essentially, the core of the banking operation remains the same, but the experience is heightened.
Let’s consider an example where the bank is ICICI, and the Fintech company is PaySprint:
- ICICI bank allows PaySprint to access its banking services, make transfers, balance queries, and other functions available
- Next, the integration of ICICI’s APIs with PaySprint products takes place
- Finally, PaySprint makes API calls and fetches the necessary services from ICICI bank to further execute banking operations
Benefits of API banking and strong partnership with banks and Fintechs
- With API banking, Fintech innovators have more flexibility to provide the best features and services to streamline financial services, thereby creating a surge of competition and innovating Fintechs products, where the core product and service belongs to the bank.
- With real-time banking capabilities getting enhanced by Fintechs, it has led to higher visibility of cash flow making banking services more effective.
- Fintechs have Reduced many administrative hurdles with regard to managing customers own finances like applying for a business loan, checking your creditworthiness, and much more, this making banking more accessible.
- Fintechs having created a single view of the customers all finances while being able to control, track, and analyse all financial movements, all in one place have made banking easier.
- Fintechs have used API banking to lead innovation and thereby lower the costs in a way that it is now more economical to serve the underserved and unbanked and offer products and services better suited to their needs, thereby making banking services more economical and better reach.
- Today Fintechs are using API Banking to retrieve account balances in real-time, processing transactions at high speed round the clock making banking accessible 24*7.
- Fintechs are using API Banking to provide enhanced information for reconciliation in real-time, process vendor and dealer finance transactions real-time thereby facilitating banks to have faster churn in the ecosystem.
The most important fallout of API banking is the data analytics which lies at the heart of the banking-Fintech API revolution. Banks can now collect substantial quantities of data relating to customer behaviour, which should, in turn, enable them to create more tailored products and services and also specific marketing initiatives.
For instance, banks can gain a more realistic picture of customers’ financial situations, which in turn can help Fintechs to create and offer the right lending product. Similarly could be payments, collections, eCommerce, gaming and many more use cases
So thereby API banking is truly creating a strong relationship between Banks and Fintechs and we can say that this is setting a stage for the next big revolution in banking and truly driving India to a $10 trillion economy.
How Fintechs/digital banking impacted rural Indian economy post-COVID
With 60 per cent of Indians still in rural India, it has a significant impact on the economic progress of the country, and with the emerging changes of ICT penetration, and the impact of demonetisation and COVID, alongside the digital initiatives carried out for rural segments, the need for improving the trends of digital payments model in rural India is very important.
Considering the benefits like transparency in transactions, the scope for curtailing parallel economy and improving the ease of business, it is very essential that the transformation towards digital payments, even in the rural economy is empowered. Some of the revolutionary developments in the recent past like launch of many digital wallets such as Paytm, etc. UPI (united payment interface) apps like Google Pay, Phone Pay, and AePS, M-POS, Micro ATM, Aadhar Pay have led to smooth transition of digital payments.
Indian economy is one of the fast growing economies of the world. Despite of global turbulences because of Covid. In the recent past, there are significant developments that has taken place in the Indian financial system, which has led to huge transformations, trends and changes in the business dynamics
- Though the government of India has been focusing on the digital transactions initiatives since last few years, the actual impact of digital payments has taken place in India in significant manner post the Covid period.
- Post Covid UPI transactions has grown to 3500 million transactions per month from 1300 million transactions pre Covid.
- Post Covid AePS transactions has grown to 400 million transactions per month from 200 million transactions pre Covid
- In both the above growth drivers in digital transaction has been from rural India.
- For successful implementation of digital transactions and digital banking system, certain key processes that are very essential are internet / smart phones /mobile banking, more of ecommerce presence in rural segments, digital transaction solutions like the PoS solutions , Biometric Solutions, usage in merchandise, usage of plastic currency etc.
Digital payments in rural sector
In the recent past, many fin-tech companies are focusing on rural markets to increase its operational base and attaining a good market share.
Pre-covid period very few merchants and consumers from rural segments were using the digital payment solutions, post-covid has seen exponential growth in the number of users using PoS, Biometric devices for AePS withdrawal, QR code for UPI payment acceptance.
Government encouraging public with incentive schemes for using the UPI (United Payment Interface), reducing the service tax over digital transactions over government e-services signify that there is huge transformation taking place towards digital payments.
Launch of more digital payment solutions
Though India is cash based economy, slowly the transition has started towards digital economy.
RBI issuing payment bank licenses to many fin- tech companies like Paytm, Fino etc,, who are leading the foray of digital payment options available for stakeholders like merchants and consumers.
Strategic launch of UPI solutions like BHIM by Government of India, and also enabling large private players like Google Pay, Amazon Pay, PhonePe etc to enable hassle free digital transactions
Aadhar based payment solutions that are emerging strongly in to the Indian market like AePS, Aadhar Pay signifies potential scope of carrying out digital payments even with feature phones.
The growth of Fintech is due in large part to the opportunity it affords small players to compete on the same field as traditional banks and financial institutions. Thanks to Fintech, it’s no longer about who is biggest, but who is fastest and most responsive at effectively addressing the ever-changing consumer demands.
Additionally, solutions offered by Fintech companies are no longer “one size fits all.” Instead, they offer targeted – often niche – services that fill the gap of a particular financial need, sometimes at much lower costs than those offered by traditional financial providers.
As consumers become even savvier and more connected, the Fintech companies that succeed will be the ones that continue to successfully innovate in bringing new solutions to old problems.
S Anand is the Chief Executive Officer and Co-Founder of PaySprint, a Fintech venture focussed on Next Gen Neo Banking Solutions, offering a Unified Open API Platform. Views expressed are personal.