Open Banking in India: From Open Payments to Consent-Driven Open Finance

Abstract

Open banking has gained popularity in most countries where customers can securely share their payment data with regulated third parties. In some cases, regulated third party financiers are also in some cases allowed to make payments in place of their customers. In many countries, the central government asks banks to provide standardized API access through regulation for open banking. In India, a unique environment prevails where in the government has a two-way approach to promote openness which expanses within people financial inclusion. UPI (Unified Payments Interface) and AA (Account Aggregator) framework are two initiatives taken by the central government of India under the DEPA (Data Empowerment and Protection Architecture). This paper analyses on how open banking is implemented, the role of the central government in open banking, and whether foreign direct investment is needed to further push the case of open banking in India. Further, the path to profitability of payment applications in India such as Google Pay, PhonePe and PayTM where payments are conducted seamlessly by customers without any cost is also studied. India cannot continue to have a zero MDR (Merchant Discount Rate) policy forever as someone has to take the cost of technology, security and seamless open banking. Sustainable monetization of payments without losing the trust of millions of people who are using the open banking channels and quick resolution of grievances will go a long way in transitioning into open banking economy in India.