Raleigh, North Carolina headquartered enterprise open source software provider Red Hat is helping Indian banks become more nimble by leveraging open banking, where third-party developers build applications and services around the framework of a financial institution by using open application program interfaces (open API).
In other words, financial institutions can innovate faster and cheaper than before.
The concept is gaining ground in India, with lenders such as ICICI Bank, Kotak Mahindra Bank, HDFC and Yes bank announcing their own set of APIs that can be integrated with third party applications.
In an interview with TechCircle, Marshal Correia, vice president and general manager of Red Hat India/South Asia unpacks open banking in India, top challenges in technology adoption, security requirements to run operations smoothly and what the future holds for open banking.
How has open banking evolved, especially in India?
There is a lot of curiosity regarding what is open banking. Prima facie what has happened is that the millennials are really expecting a different kind of customer experience from banks.
Second, I don't think everyone wants to go to one financial house for all the services like in the past. Today there are many providers and people want to utilize specific services for a specific entity. Third, the overall ecosystem is getting more conducive in terms of a ‘mobile first’ approach, and the penetration of the internet and a tech savvy user base will only increase the adoption of open banking in the future.
Additionally, I think open banking in India has taken a giant leap with the government's UPI (unified payments interface) initiative. Today transactions are hitting the roof and in August it hit a record 1.62 million.
With open banking currently there are many processes that have opened up and we now have the capability to directly get into client’s ERP (enterprise resource management) systems, perform KYC, offer credit scores and collaborate with third parties. With all of the new fintech companies coming in there is an opportunity to make this work.
Could you share examples of open banking implementation in India?
I will talk about UPI because that's a place where we have done lots of work. We have seen how the payment system has transformed largely on the back of demonetization due to which digital payments have scaled up. The COVID crisis accelerated contactless payment which has also got a boost due to digital commerce.
You basically need a cloud infrastructure, and cloud native applications to be brought in. That is where RedHat OpenShift as a platform has been used to containerize these applications. And there is a lot of movement towards building cloud native applications.
I think there are multiple banks who are looking at moving towards cloud native. The other part is in terms of transformation of channels. From a customer engagement or customer experience area, today customers are more comfortable transacting over web channels. And hence there is a huge growth of internet banking, mobile banking, whose applications are also getting containerized. So these are the two areas we can see an impact. But in general, beyond this, e-wallets is another area where there is a huge growth.
How is Red Hat addressing pain points in the adoption of open banking?
From a larger ecosystem perspective, the Data Protection Law, a robust consent architecture, and network providers and users of data are crucial.
What open banking will need is an ability to open up the company’s application programming interfaces in a secure manner. From Red Hat's perspective we have an application product portfolio which is built around the open APIs and the entire technology stack is built around an open source delivery model.
We work with the open source community where a lot of innovation happens and there are lots of projects which are worked on and we convert these projects into products and then offer them to downstream customers as any other enterprise software. We bring security, scalability and long term product roadmap with the right support, open standards and interoperability.
In terms of technology, we help in three key areas. First, the journey to the open-hybrid cloud for better scalability and elasticity. Second, in terms of the application layer, we offer open APIs as part of our middleware portfolio. Third is automation. We need to be able to automate from the perspective of making things predictable and secondly to have the ability to scale up and reliability to deliver the service levels.
The basic infrastructure that you create needs to be secure and robust, and that is where Red Hat Linux becomes fundamental.
What are the top open banking security concerns of CIOs/ CISOs in India?
All of the banks now have a CISO (chief information security officer) whose sole job is to focus on security. Security now is a matter of technology, process and how the functioning is monitored on an ongoing basis.
The banks have built processes, tools and monitoring centres to make sure that the transactions are securely routed and risks are eliminated. Additionally, fraud management systems are being installed for better security.
How does Red Hat mitigate these risks?
From Red Hat’s perspective, we add value through Red Hat Linux which helps the ecosystem see vulnerabilities and resolve them through smart tools that we offer. The management of security has also become huge and we now need to use artificial intelligence, machine learning solutions for security, with ongoing automation becoming critical and compliance becoming critical. I think this will be a constant challenge and banks are working on such solutions.
How does one measure the progress of technological adoption within banks?
It has to be linked to the business results that the bank delivers. Because technology is not for the sake of technology, but rather for enabling banks with a better business vision and better customer experience to provide higher revenue, growth, and cost reduction, and also risk mitigation, in terms of security and availability.
For many of the banks, if you see the growth of physical branches, they are not expanding as much as their digital footprints. In terms of open banking, we can measure by how many fintechs are being utilised, how services get de-segregated and also through growth of these new use cases that will come into play.
How does the innovation mindset in India for open source API projects compare with that of Europe and North America?
There's a huge challenge of legacy systems across the world, but we are better off as we started late. As a result of which we all started developing from packaged applications, rather than legacy systems. I don't think we have any mainframe based systems in India. Indian clients are also more adaptive and the ecosystem is more open to innovation. So I don't see any disadvantage, I would say, India, India actually can take a lead as compared to other geographies.
How do you expect India’s open banking environment to look in a few years?
In the future there will be a lot of fintech competition that will come in and there will be unbundling of banking services.
Emerging players will become aggregators of services. And there will be emerging players who will aggregate services from different players in the industry.
Today for something as simple as a credit score you have to go across multiple databases, and gather information from bills and other entities. So I get a feeling that competition will grow, there will be new players and there will be unbundling of services and increasing competition from existing players. But all of this finally depends on how the companies shape their business model and use technology.