We use cookies and other tracking technologies to provide services in line with the preferences you reveal while browsing the Website to show personalize content and targeted ads, analyze site traffic, and understand where our audience is coming from in order to improve your browsing experience on our Website. By continuing to browse this Website, you consent to the use of these cookies. If you wish to object such processing, please read the instructions described in our Cookie Policy / Privacy Policy.
Interested in blogging for timesofindia.com? We will be happy to have you on board as a blogger, if you have the knack for writing. Just drop in a mail at toiblogs@timesinternet.in with a brief bio and we will get in touch with you.
VP Product and Chief of Staff at Dinero
At the core, the business of banking is simple – borrow money at lower interest rates and in turn lend the same at higher interest rates. The difference in these rates is what banks make as money. While this is a simplistic way of looking at the banking business, other important aspects such as underwriting, collecting and risk management make it quite complex.
As an industry, banking, globally, has gone through two large revolutions in the last century. The first was the regulation of banking in the US in the 1930s as a result of the Great Depression – which has continued to evolve over time with the last major trigger being the 2008 Global Financial Crisis. India, too, has gone through phases of nationalization, liberalization and privatization with a fairly robust regulatory regime in place today.
The second – the more important and continual revolution has been the technologization of banks. On this front, the Indian banking industry has made rapid strides in the last three decades and has arguably attained pole position globally today with the explosion of the API economy.
The Indian Tech Story of Banking
The economic liberalization of the 90s saw Indian banks explore the use of technology in banking operations. This was largely restricted to banks with core banking solutions – which revolved around processing banking transactions i.e., deposits and loans. With most of these processes performed manually before, technology backed core systems increased the speed of processing transactions multifold.
The information technology revolution of the 2000s and the impetus provided by the IT Act of 2000 saw the largest banks in the country embrace core banking solutions – thereby serving customers at scale and processing large volumes of transactions. In short, the productivity, profitability and efficiency of banks significantly increased.
Digital Payment Solutions
The next decade and a half, until 2016, saw massive disruption and major innovation in the consumer payment space. Cards led the first set of cashless payment instruments with debit and credit cards becoming mainstream – which compelled banks to develop and upgrade their existing core banking solutions. It also saw the introduction of ATMs.
The major turning point during period was the rise of digital wallet fintech firms. While this period was short with the advent of the United Payments Interface (UPI) – which has almost wiped out the digital wallet ecosystem in India – it saw the introduction of Application Programming Interfaces (APIs) in banking technology stacks.
Digital wallet fintechs had to integrate with core banking systems to store money and process payments – which banks were hesitant to. In order to accrue the benefits arising from the penetration of digital wallets, banks developed frameworks to only share payment related services through APIs. The result was a robust integration mechanism between two parties – banks and fintechs – where banks, now, didn’t have to worry about exposing their entire core technology systems to fintechs, and on the other hand, fintechs got access to specific services, and parts of core banking systems to power their payment products. The UPI, which has revolutionised digital payments in India, is also built on similar API frameworks.
The Explosion of the API Economy
The corollary to this phenomenon was a stark realisation amongst banks to leverage the power of APIs to offer other available products in their suite to fintechs. Banks today offer core products-such as savings accounts, FDs, credit cards and other allied products like demat accounts and insurances in the form of APIs to fintech partners. The benefits of this are clear – banks get additional user acquisition channels at much lower costs, and the ability to scale significantly increases. Fintechs, on the other hand, purely focus on delivering exceptional user experiences that banks have traditionally fallen back in.
This symbiotic relationship is at the core of the multitude of fintech-bank partnerships in the Indian ecosystem we see today – whether it is in the form of neobanks, challenger credit cards, buy now pay later (BNPL) products, pocket insurances, new-age investment products, P2P lending etc.
Indian banks have done a remarkable job in being nimble to build and expose their APIs to realise the advantages of scale, and enhanced delivery and service. However, some banks are yet to join the bandwagon of the API economy and develop their API suites. It is however clear that banks that provide API suites for all products, can take advantage of the fintech revolution, expand their business footprint, and will become the leaders in the coming decade.
{{C_D}}
{{{short}}} {{#more}} {{{long}}}… Read More {{/more}}
Views expressed above are the author’s own.
Sanity goes south: Does a trader’s religion matter? Yes, says Karnataka, and sets itself and others up for a great fall
The real reason why the Left eco-system has launched a scurrilous attack on the movie Kashmir Files
Goddess and nemesis: Sonia must sacrifice her family for Congress to have a chance at revival
Has IAS failed the nation? Yes, and it’s not all politicians’ fault. The service rewards mediocrity & risk aversion
Another desi cracks a corporate glass ceiling in US: Raj Subramanian named CEO of FedEx
Maharashtra in a state of despondency
The gut-wrenching Kashmiri Pandit story needed to be told — and seen
Reputation factor: Karnataka’s tech hub is a great Indian story. Increasing social disharmony won’t help it
Moscow mantra: India’s Russia stance must change if costs pile up
Choose wisely: India can’t compromise on principles if it aspires to be a global power
Interested in blogging for timesofindia.com? We will be happy to have you on board as a blogger, if you have the knack for writing. Just drop in a mail at toiblogs@timesinternet.in with a brief bio and we will get in touch with you.
Right & Wrong,TOI Edit Page
The Underage Optimist,TOI Edit Page
Chennai Talkies
Ruminations,TOI News,Tracking Indian Communities
Copyright © 2021 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service
Home Uncategorized The changing banking technology stack that’s powering the Fintech revolution – Times...
