Rise of Open Banking: Is this the potential business model ahead for everyone?

Launch of multiple open banks in last couple of years like Bank Open, Niyopay, OKCredit along with their massive funding have made Open Banking the hottest trend in India. As of now atleast 10 new players are in the process of building an Open Bank. Many lending/ payment/ wealth players are also looking at the possibilities of transitioning into an Open Bank.

Open banks essentially offer banking services through their partnership with banks. These services are embellished with critical needs of customers like invoicing, accounting, taxation etc. to make their services complete.

As an MSME customer, I have realised that I have limited need of internet banking services of my bank. What I want is that entire banking services are executed out of my invoicing and accounting platform, which I use on regular basis. This will solve the issues of payments as well as collections and help me in getting loans (as and when I need).

Open banking models are primarily focused on two key segments: Retail and MSME/SME. Within each segment, there are possibilities of targeting large sub-segments, thereby avoiding competition.

Retail: Open banks would be offering accounts, payments, lending, wealth, e-commerce and other personal services needs through partnership with banks and other providers. This segment is extremely tough as existing large players like Paytm, Phonepe are already offering these services.

Msme: The business needs of this segment have not been managed by their banks as well as current Fintechs. Open banks can create value by offering single platform for invoicing, accounting, taxes, payable / receivable management, payroll etc.

I personally believe that SME segment will see hyper growth cycle in next couple of years. This would be accentuated by lack of focus on banks on this segment. Most banks offer focused services for Retail and Corporate customers. However, MSME segment is considered a hybrid and complex by banks & hence most banks do not have powerful MSME offering through digital channels.

In the next blog, I will share reasons for banks to collaborate with Open Banks.

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