Will NBFCs Follow Banks to make Its Own Ecosystem Using APIs?

Will NBFC's Follow Banks to make Its Own Ecosystem Using APIs?

NBFCs in India have exponentially grown on the shoulders of technology within the last decade. Digitalization gave Indian lending industry the hope to become $100 billion in size by 2023. We’ve barely scratched the surface of this enormous technological poweress.

The breakthrough is for all the NBFCs to hitch hands and make a whole lending ecosystem that thrives on Open Integrable Technology i.e. APIs (Application Programming Interfaces) in order that the whole industry can grow together.

What is Open Integrable Technology?

Open Integrable Technology is creating an open data infrastructure that's shared by a network of institutions, in our case, the NBFCs through open APIs to urge faster access to reliable data.

It is particularly significant within the evaluation of borrower’s credibility and offering customized products or services to customers, especially payment solutions.

How has Open Integrable Technology evolved in India?

While this new wave of technology was creating a surge in global financial markets, the Indian economy embraced it with the introduction of UPI - Unified Payment Interface.

In 2013, YES Bank and RBL Bank took a breakthrough to permit other developers (including competitors) to use their APIs to innovate financial products. Realizing the large potential, all major banks in India eventually stepped in.

In 2016, Demonetization became crucial within the surge of digital transactions. Mobile wallets, transacting through banking apps, and digital payments exploded nationwide, thus involving an enormous chunk of population within the formal financial cycle.

Open APIs became vital to effectively manage growth, also as avoid errors/frauds. Today, most Indian banks collectively work with one another using open APIs to serve their customers better; thus, creating a solid foundation for the whole banking ecosystem. In fact, ICICI recently launched India’s largest API portal in 2020 with nearly 250 APIs. an equivalent is that the roadmap to be followed by NBFCs.

Aadhaar
e-KYC
e-Sign
Proposed privacy-protected data sharing
UPI - Unified Payments Interface

Following are the opposite noted benefits of integrating it-

Easy integration with the ERP (Enterprise Resource Planning) systems of corporate giants
Verification of PAN number
Glitch-free transfer of funds
Offer competitive currency rates
Access financial history of the borrower through credit scores
Innovate financial products and payment solutions
Collaboration with other institutions
Competitive analysis to supply a premium experience to customers cost-effectively

What are the risks involved Open Integrable Technology?

The biggest risk, rather a threat to such open technologies are the Cybercrimes. Open APIs are susceptible to malicious third-party apps or software to access, misuse, or maybe wipe out data permanently. While it’s a mammoth's task to crack through the API security, the ever-evolving world of cybercrime will always keep the businesses on their toes.

Even though the Federal Reserve Bank of India is fighting tooth and nail to rework India into a cashless economy, they need a strict warning given to all or any the financial institutions to first identify all the risks or threats involved in their existing framework before jumping to undertake new technologies.

Clear policies and processes must be laid down for open APIs, and adequate surveillance on the systems must be maintained to hide all vulnerabilities. Regular testing of the systems is important to avoid risks of fraud , authorization breach, lending frauds, spying apps, etc.

Basically, with the endorsement and acceptance of Open Integrable Technology comes the responsibility of Cybersecurity to form sure data is employed for ethical purposes only.

How can we make Open Integrable Technology like APIs more reliable?

India Fin-tech-forum had invited dignitaries to offer key recommendations on the open API policy during the Fintegrate Zone 2018, and this is often what they concluded-

Government policy in situ to manage open API data-sharing
A government regulatory body to make sure the sole ethical use of knowledge
A simple mechanism to integrate APIs for non-tech MSMEs and Corporates
Indian government must not be satisfied with only UPI / IMPS as open integrable technology for payments. Open APIs are often used for several financial procedures including account depositories, lending, trade financing, etc
Inspired by the Monetary Authority of Singapore's creation of the Sandbox, we too must reduce bureaucratic challenges within the system.
A unified API model accommodating financial and non-financial industries like manufacturing, transport, tourism, retail, health, etc to enable ethical data sharing to extend the momentum of digital India; while data from the GSTN, MCA, tax , NSE, BSE, CCI, EPF also can be utilized.
A consent layer for India Stack that lays down the monetization framework for data-givers and data-receivers.

By embracing Open Integrable Technology through deploying APIs, NBFCs can enhance their services by quickly adapting to the changing demands of the purchasers . These APIs can enable customer acquisition, engagement, and retention. More importantly, it helps the whole lending industry to grow on each other’s strengths while competing healthily.

It allows the blooming of innovative products/services, entrepreneurship, new business opportunity, and therefore the much-required stability during this volatile economic environment.