Your personal information is creating a revolution. It is perhaps making a whole new world. Open banking is where banks and other financial institutions involve third parties to use transactional, operational or personal data to create innovative solutions. That is done by plugging in the application programming interfaces (APIs) of third-party providers.
CRED, a fintech company, allows you to pay their credit card bills by offering other freebies or short-term credit. It caters to customers with good credit scores. Then, there are disruptive businesses like
Faircent, a peer-to-peer lending platform. Any success for such a platform could threaten retail banking as it links people wanting to borrow directly to people wanting to lend.
There is a revolution in the name of cryptocurrencies. While trading in cryptocurrencies is not permitted in India, the technology behind them could transform the way you own financial or physical assets. It is possible to break down all tangible and intangible assets into tokens and trade. That can happen without the need for a stock exchange. There are many APIs created to allow trading strategies integrated with the online trading mechanism in the stock market.
Programmed trading will enable investors to manage their portfolios, move money from one market to another or hedge risks. Sharing information between financial institutions and other related businesses is not new. Banks already share information with companies that keep credit scores. You get a number based on your loan repayment record. A score of 750 and above is considered favourable by banks.
The promise is of the future
There is significant private equity money poured into such solutions. Rising internet access and low cost of bandwidth mean financial services can expand their reach.
Companies that run the app CRED raised tens of millions of dollars last month to top over $2 bn in valuation. Many companies offer API solutions to be plugged into stock market trading systems or mutual fund investing.
The backbone of the digital era is based on the information you provide to your bank or your service provider. The data is held in multiple silos. Your service providers can share the information only if you allow.
In most cases, the efficiency of the service provided to you is based on your permission to use your personal information. That means, whether you want to share or not share, you agree to all the terms and conditions when you need those services.
Data privacy is a concern for all. However, unless you share your information, it would not be possible for digital banking or a financial services provider to offer a relevant solution to you. Regulators around the world are debating the issue.
The key is to decide on the use of data. Financial institutions are only holders of customer data. You are the owner of your information. In India, account aggregators are intermediaries between financial institutions like banks, mutual funds, non-banking finance companies, insurance companies, depositories or others and users of such
financial information.
Your consent matters
Any transfer of your personal information between these entities happens only based on explicit consent and with appropriate agreements or authorisations between the account aggregators, you and financial institutions, according to M Rajeshwar Rao, deputy governor of the Reserve Bank of India. He spoke at length on open banking at a recent event. He called open banking a potential disruptor in the financial system. However, he also highlighted concerns regulators like the RBI and around the world are addressing.
He flagged risks about financial privacy and data security. Only when the data privacy law pending in Parliament is passed in India will your data security concerns be addressed. He also said that the open API provides uncluttered access to customer (your) banking data such as transactions and balance stored within the infrastructure. “It may also pose a severe cybersecurity risk,” the deputy governor told the gathering.
While fintech firms enhance your ability to do financial transactions on tap of your mobile phone screen, you need to upend your awareness. While it is tough to escape vulnerabilities to your data, you must ensure that you use external apps, products and services from trusted and regulated institutions.
750 A minimum score considered favourable by banks
(The author is editor-in-chief at www.moneyminute.in)