Can NBFCs Follow Banks To Create Its Own Ecosystem Using APIs?

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NBFCs in India have exponentially grown on the shoulders of technology in 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.

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Many new-age NBFCs have reaped benefits of technology by digitizing sub-processes of a lending cycle that includes pre-approval of loan applications, loan origination, loan management, debt recovery, and post-lending customer service.

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The step forward is for all the NBFCs to join hands and create an entire lending ecosystem that thrives on Open Integrable Technology i.e. APIs (Application Programming Interfaces) so that the entire industry can grow as one.

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What is Open Integrable Technology?

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

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

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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.

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

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

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

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What are the benefits of Open Integrable Technology?

APIs define the creation, sharing, and accessibility of financial data within the network. It helps build an ecosystem that nurtures every company that is a part of it. Under the Digital India Initiative, the government has mandated an open API policy for five of its key programmes.

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

Following are the other 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 provide a premium experience to customers cost-effectively

What are the risks involved with Open Integrable Technology?

The biggest risk, rather a threat to such open technologies are the Cybercrimes. Open APIs are prone to malicious third-party apps or software to access, misuse, or even 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 companies on their toes.

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

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

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

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How can we make Open Integrable Technology such as APIs more reliable?

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

• Government policy in place to regulate open API data-sharing
• A government regulatory body to ensure the only ethical use of data
• 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 can be used for many 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 in the system.
• A unified API model accommodating financial and non-financial industries such as manufacturing, transport, tourism, retail, health, etc to enable ethical data sharing to increase the momentum of digital India; while data from the GSTN, MCA, Income tax, NSE, BSE, CCI, EPF can also be utilized.
• A consent layer for India Stack that lays down the monetization framework for data-givers and data-receivers.

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

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