Banks are now convinced that in order to extend their banking solutions and achieve true financial inclusion beyond their own channels they need strong partnership with Fintech with API
From a consumer’s ability to go online and see their financial transactions to apps that allow you to pay friends and the ability for investors to do their own research, choose stocks and see their portfolio performance in real time is an example of FinTech in action.
A decade ago RBI introduced NEFT and RTGS, followed by NPCI introducing IMPS, and this was a start of digital or online banking and since then banking sector has seen a paradigm shift. The next stage of evolution was from an internet banking to API-led banking.
The underlying need to move to API-led banking is to improve customer experience and liquidity decision making of the customer. API banking holds out the promise to foster innovation and lower costs.
Banks are now convinced that in order to extend their banking solutions and achieve true financial inclusion beyond their own channels they need strong partnership with Fintech with API.
Using Fintech, companies are using API to retrieve account balances in real time, processing transactions at high speed round the clock, provide enhanced information for reconciliation in real time, process vendor and dealer finance transactions real time thereby facilitating faster churn in the ecosystem.
What is API banking and how it works?
API (Application Programming Interface) traditionally pertains to the tech interface between software programs. This interfacing ability facilitates a third-party application, Fintech 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 via APIs. This helps both bank and Fintech to augment their complementary specialties and offerings more than they can provide to their customers by themselves.
Over the last few years, APIs have become significant to banks and Fintech companies. APIs provide better means to share data, integrate with systems and personalise services. The same applies to banking. Banks grant secured access to their financial services to Fintech platforms, helping companies build products around banking services. Let’s consider an example where the bank is ICICI, and the Fintech company is PaySprint. First, ICICI bank allows PaySprint to access its banking services, making transfers, balance query, 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 execute banking operations
Benefits of API banking
• With API banking, Fintech innovators have more flexibility to provide the best features and services to streamline financial services.
• With real-time banking capabilities getting enhanced by Fintech, it has led to higher visibility of cash flow making banking services more effective.
• Fintech companies have reduced many administrative hurdles with regard to managing customers, applying for a business loan, checking your creditworthiness, making banking more accessible.
• Fintech 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 more easy.
• Fintech companies have used API banking to lead innovation and thereby lowering the costs in a way that it is now more economical to serve the undeserved and unbanked and offer products and services better suited to their needs.
Most important fallout of API Banking is the data analytics. Banks can now collect substantial quantities of data relating to customer behaviour, which, in turn, enable them to create more tailored product ND services and also specific marketing initiatives. API Banking is truly creating a strong Relation between Banks and Fintech companies and we can say that this is setting a stage for the next big revolution in the banking sector.
How digital banking is impacting rural economy
With 60 per cent of Indians live 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, 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 like – Paytm, UPI 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. 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
1. Though the government of India has been focusing on the digital transactions initiatives for the past few years, the actual impact of digital payments has taken place in India in post pandemic.
2. UPI transactions has grown to 3500 million transactions per month from 1300 million transactions after COVID.
3. Post COVID AePS transactions has grown to 400 million transactions per month from 200 million transactions pre-COVID
4. In both, the above growth drivers in digital transaction has been from rural India.
5. 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.
Though India is cash based economy, slowly the transition has started towards digital economy. RBI issuing payment bank licenses to many Fintech companies like Paytm, Fino, 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 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.
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.
The author is the CEO 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