The NPCI has been promoting and managing digital transaction platforms in India since 2008 and is backed by more than 50 retail banks. They have, over the years, introduced payment channels like RuPay, Bharat Bill Pay, IMPS, and many others. However, due to the exponential rise in internet traffic and subsequently, frauds and cyberattacks, it has become difficult for NPCI to manage everything on their own. Therefore, in an attempt to address this ‘risk concentration’, the RBI in 2020 invited private companies to set up a new platform – New Umbrella Entity (NUE). The idea behind this initiative was to reduce the dependence on NPCI and create an alternate mechanism for digital payments for the country.

As per the RBI, NUE is a non-profit entity that will be formed and incorporated in India under the Companies Act, 2013. It can also be a ‘for-profit’ or a company under Section 8.

In addition to reducing the concentration of cyber risks, sharing responsibilities between the NPCI and NUEs will pave the way for an improved digital payments ecosystem. It will also lead to healthy competitiveness, which in turn will ensure better and effective products and services. The future of the payment system will be more interoperable.

Let’s take a detailed look at the activities and the framework of NUEs, as per RBI guidelines.

Scope of activities:

1. Set-up, manage and operate new payment system(s) especially in the retail space comprising of, but not limited to, ATMs, White Label PoS; Aadhaar based payments and remittance services; develop new payment methods, standards and technologies; monitor related issues in the country and internationally; take care of developmental objectives like enhancement of awareness about the payment systems.
2. Operate clearing and settlement systems; identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system(s); monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system(s) and/or the economy in general.
3. Fulfil its policy objectives and ensure that principles of fairness, equity and competitive neutrality are applied in determining participation in the system; frame necessary rules and the related processes to ensure that the system is safe and sound and that payments are exchanged efficiently.
4. Carry on any other business as suitable to further strengthen the retail payments ecosystem in the country.

Framework:

• • Owned and Controlled by Residents: The promoter or the promoter group for the NUE should be ‘owned and controlled by residents’ with 3 years’ experience in the payments ecosystem.
  • The shareholding pattern should be diversified. Any entity holding more than 25% of the paid-up capital of the NUE will be deemed to be a promoter.
  • Capital: The umbrella entity shall have a minimum paid-up capital of Rs. 500 crore.
  • No single promoter or promoter group should have more than 40% investment in the capital of the entity.
  • A minimum net worth of Rs. 300 crore should be maintained at all times.
  • Governance Structure: The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.
  • The RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.

Impact:

As of May 2021, four consortiums have submitted applications for the National Umbrella Entity (NUE) licenses, which will allow firms to build a real-time payment platform for India. These consortiums include companies such as Silicon Valley giants Facebook and Google, and India’s largest businesses like Reliance Industries, Tata Group, HDFC Bank, and ICICI Bank.

With the introduction of NUEs, there will be a plethora of payment options for consumers, due to competition. India aims to become a cashless economy and NUEs are a great step towards that goal. It also ensures that the digital payments arena will expand and be more financially inclusive by reaching far and wide into India’s unbanked areas. This is a great opportunity for financial inclusion in the country!

Creating financial consumer products is complicated, expensive, and time-consuming. Connecting with banks, designing a solution, and meeting regulatory requirements ends up affecting time-to-market. This also delays the monetization of the bank’s infrastructure.

Here’s where TransXT comes into the picture.

Bank-in-a-Box:

TransXT is a simple, instant, secure, and scalable platform that elevates the process of transacting money across banks, businesses, fintech, start-ups, and consumers. It is a one-stop solution that connects the entire spectrum of banking transaction services. The innovation aids users in establishing newer revenue streams and increasing revenue. Companies can create a coherent internal ecosystem with this model and eliminate technological friction within their systems.

Why TransXT?

Businesses today need efficient and reliable solutions. Besides, banks are not tech-efficient and cannot spend time fulfilling each of their customer requests. Here is where TransXT comes into the picture. It has the capability to provide clients with effective solutions with its ready-system blocks in no time; thereby making fintech-bank integrations more efficient.

TransXT – revolutionising payments:

TransXT is a plug-and-play API Banking Platform that enables businesses to go live in an instant. It can integrate easily into existing systems. This unified platform creates a payment marketplace for customers and paves the way for effortless digital payments.

Advantages of integrating TransXT as a Banking-as-a-Service platform:

1. Pay-per-use model
2. Highest transaction success rate
3. Customised solutions
4. Instant activation
5. PCI DSS complaint
6. 24X7 customer support
7. Secure payments with 256-bit encryption
8. Tailor-made solutions

How does TransXT integrate seamlessly across different ecosystems?

• Fintech:TransXT brings digital services out of the bank and makes them available to Fintech companies in the form of plugins – simple and quick. It enables Fintech to focus on market and business instead of integrations and operations! Fintech can use functionalities such as money transfers, bill payments, Aadhaar-enabled payments, UPI-based solutions and others.
• Corporates: If you are looking to make your payments simpler, TransXT’s cutting-edge technology is what you need. Employees get more convenience with real-time and paperless reimbursement. It includes generating secure payment links, card management, branding with every transaction, and so much more. It facilitates ‘anytime and anywhere’ payouts at your fingertips.
• Banks:For banks, integration between internal systems and compliance requirements is a challenge. With TransXT, all banking systems are integrated with ease at once. This allows banks to expand their digital banking portfolio and work as a digital banking platform. Furthermore, the solution provides the user with a reconciliation and settlement module that gives the bank full control and also presents the user with in-depth analytical reports to provide visibility.
• Network aggregators:It assists aggregators in offering their customers online or cash-initiated assisted payment services through API and White Label solutions. TransXT enables services such as money remittance bill fetches, payments and recharges (including mobile and DTH recharges), UPI/QR code payments, AEPS (Aadhaar Enabled Payment Service) based withdrawal, micro-ATM/mPOS services, and also supports e-stores using the assisted model at the kiosk/retail locations.

TransXT is the best-in-class API banking platform. Now businesses can focus on their core expertise while TransXT takes care of the backend integrations for payments. It is best suited to your needs and provides business-specific solutions as per requirement.

Want to know more about how TransXT can empower your business? Get in touch with us!

Open Banking has revolutionized the FinTech world with a new perspective. Its capabilities extend beyond the digital payments as innovations reveal a quicker way to do things and features that go beyond mere convenience for the customers.

Open banking brings the best of both worlds and was initially conceptualized as an outbound trade service that lifts the ceiling of traditional banking infrastructure to provide better customer services. The concept was coined as Open Innovation by Henry Chesbrough who was the Head of Open Innovation at the Haas School of Business. Its aim was to promote sharing of data, which does not belong to a single entity. Later taken up as Open Banking by financial institutions, the core ideologies remain the same, to enable better decision making for the end users.

In its current form, the concept is aimed at providing a common digital platform for various bank computing systems with a common digital language shared via an Application Programming Interface (API). These APIs are what the FinTech start-ups offer to drive innovation across several industry domains.

• Allowing third party developers to build applications and services around a financial institution, a concept around which several FinTech start-ups offer services.
• Facilitating financial transparency for end users with open and private data options
• Using open source technology that is freely available.

So, why was data sharing and customer consent prioritized? Until recent times, banks closely guarded your data and could be accessed only using specific transactions. Therefore, only authorized access could retrieve your data. However, data was still leaked and used for business promotions.

This was the era of screen scraping where data was collected illegally. It was an unsafe, risky and highly inconvenient activity that could collect confidential information and even lead to frequent account blocking. Thus began the movement of giving customers the consent to share data and revoke it whenever needed.

Open Banking APIs were then widely adopted by banks and customers wherein the transaction data is shared securely between the trusted third parties. It has managed to make ripples because it is a sustainable model that is reliable and secure.
On the other hand, with such an advancement comes the need for strict regulations and policies to control the technical aspects of open banking. In addition, there is also the need for new age security controls that adhere to data privacy.

A monumental directive in this regard has been the Payment Services Directive or PSD2 standard for data protection. It is an upgrade on the existing directives in the EU for regulation of payment services and service providers that integrates Open Banking APIs. As more countries are expected to follow suit, this landmark decision marks the beginning of the API era. Along with data sharing in retail banking, it dictates rules for third party connections, sharing information and the scope of this information. Thus, every third party provider will go through rigorous scrutiny to verify authenticity.

Similarly, back at home, India is being touted to be at the forefront of digital payment innovation with the creation of National Payment Corporation of India (NPCI). It led to the introduction of Immediate Payment Service (IMPS) and Unified Payment Interface (UPI).

While both PSD2 and UPI are based on open banking API, they have different frameworks. NPCI was built on top of the Aadhaar Payment Bridge Systems (APBS) and MobileMapper to link Aadhaar number, account number and mobile numbers together, thereby creating a unique combination of three prerequisites. This system has predefined APIs for the banks to connect to a single UPI platform, while NPCI is in charge of inter-bank routing and translation.

There is much that both systems, PSD2 and UPI, can learn from each other. PSD2 needs individual banks to open their systems to others and provide APIs to process payment. However, experts believe that this system can backfire and result in chaos as banks come up with unique security architecture and APIs. Even though these APIs will be compliant with the regulations, they may be complex to implement and integrate.

Like UPI, a central routing and translation system will smoothen the processes further in case of PSD2. The UPI system requires member banks to register with NPCI. Thus, in order to actually be open and interoperable Partner APIs, the European Banking Authority (EBA) has to create a standardized registration process and allow API access to these partners only.

On the other hand, PSD2’s Account Information Service that can empower customers can be implemented in UPI. As banks are the sole guardians of data and do not allow sharing, the PSD2 proposal to open data to third parties in a secured and authorized environment will allow customers to compare services and providers. What’s more, customers will get enhanced transparency of their financial activity.

All being said, the Open Banking APIs are, indeed, developing at a time they are needed the most. Evolving customer expectations, prevalence of FinTechs, and safety concerns have triggered a trend that is here to stay.

Over the last few years, the way banks function has changed drastically. The digital revolution in the financial industry is here and banks have to modernize themselves to stay competitive, irrespective of size. In addition to this, customers today expect more from their banks and are more digitally savvy. They prefer interacting with banks and financial services online, provided security is given. Furthermore, they also expect banks to provide them with a range of non-traditional services.

Here is where the Open Banking model comes in handy. It is designed to help banks meet the changing demands of their customers and have additional monetization avenues. To put it simply, an API (Application Programming Interface) is an interface that allows for easy synchronization, linking, and connection between the database of the service with any application. Such a powerful technology ensures seamless interaction between systems, apps, mobile devices, and applications. APIs for online banking is advantageous to both the customer and the bank – and this is why more and more financial institutions are implementing the same. According to Juniper Research, the number of open banking users is expected to reach 40 million users by 2021.

API integration is already being used by a plethora of institutions worldwide, including private services such as PayPal, wherein it integrated API with Siri. and Facebook, where the platform integrated APIs of PayPal, Visa, MasterCard, American Express, and others. Some applications in need of integration include payments and settlement services, deposits and lending, eTrading and insurance, digital currencies, and so on.

With this as our base, let’s discuss why banks need API integration to expedite growth:

1. Survival:Technology is ever-changing and banks need to reinvent themselves to sustain – this means partnering with third-party apps and products and open banking. It has also become easy for customers to access the products and services of financial enterprises on third-party applications and websites. Banks need to open up APIs and capitalize on such distribution channels for survival.
2. Simplified processes:API platforms simplify difficult steps and allow data to flow easily between different platforms. When this happens, banks need not worry about time-consuming integrations as the complex procedures will be handled by software providers. This will accelerate innovation, save a lot of time and energy, and provide a seamless experience.
3. Convenient and secure:When critical financial data is shared between different parties online, there is a need for data privacy and enhanced security measures. APIs can be developed to ensure convenience along with utmost security. A great thing is that custom APIs can be created by developers that offer secure environments.
4. Aids start-ups: In India, when it comes to the fintech industry, the action when it comes to start-ups is high. This is due to the evolving customer behavior and the popularity of financial services and products online. Start-ups can create innovative products and services and improve their existing products with the help of APIs.
5. Provides benefits: Through API integration, financial institutions can create functional digital services within days, lower their costs, speed up their implementation processes, connect applications to mobile and cloud solutions, give customers an improved experience, and so on.

The way forward:

The future of digital banking is now. Banks need to use and develop APIs if they want to grow their business and make processes easier for customers. APIs have been implemented by a plethora of financial institutions and it has been hugely beneficial for them. For a successful digital banking transformation, the government, banks, and businesses should function hand-in-hand. Building sustainable financial ecosystems with the aid of technological advancements is the need of the hour for our banking systems.

The first wire transfer of funds happened in 1872. Since then, so much has changed – the world adopted ATMs, telephone banking, internet banking, contactless payments, mobile banking, and so much more. And today, we are further making way for a newfangled approach by way of human-centered banking: open banking.

Open banking is a part of financial technology that draws on open APIs and third-party developers to build applications and services that bring about greater financial transparency through open source technologies.

Open banking has fundamentally revolutionized the financial sector. It has made traditional banking services simple, efficient, and convenient, removing additional costs. Markets led by the UK and the EU have already passed open banking regulations with more than two million users of open banking-based products in the UK, a number that has doubled since the start of 2020, despite the disruption caused by COVID-19. Other markets, such as Canada, New Zealand, Australia, and so on, are also on the road to open banking.

Customer demand is now undertaking a paradigm shift, and the expectation from banking models have increased drastically. They want seamless, intuitive, and value-added services along with safe and secure systems and procedures. With more customers understanding the value of their data, banks are forced to opt for newer working models.

Additionally, it unlocks a new way of functioning: for Third-Party Providers (TPPs) to aid banks and companies in providing innovative solutions.

The primary beneficiaries of the open banking landscape are the end-users. The quality of services provided through the spectrum of open banking to customers has improved drastically in the following ways:

• Ability to track changes in bank accounts and receive regular notifications without the need for authentication every time.
• Complete automation when it comes to analytics and budgeting recommendations.
• Execution of transactions via a single interface, even if made through different payment modes.
• Choosing optimal payment methods depending on the offers and discounts available.
• Passing online verification when opening a new account/register.

For banks, open banking can help strengthen customer relations and be considered safe and secure data holders. Their profitability will depend on the ability to fulfill customers’ needs. With open banking, banks can cater to customer needs in a future-proof and agile method.

Open banking also involves educating and engaging customers about the technicalities and the value of their data. . Such transparency will give them access to better services and improved pricing.

Since the concept of open banking is relatively modern, a lot of end-users are hesitant to use these services. It is now up to the government and financial regulators to raise awareness and encourage users to opt for open banking services.

Jim Marous put it aptly: “Having a customer-centric culture is more than just a good thing – it’s become a matter of survival.”

You don’t need a Magic 8-ball to tell you that the time for open banking is now. The question is, have you made the shift?