Raja Debnath, co-founder and managing director of Veefin Solutions, a supply chain finance and digital lending technology company, explores the various aspects of open banking and its implications for the banking industry.

The banking industry has witnessed remarkable transformations in the past two decades, particularly in the way banks operate. One of the most significant shifts has been the adoption of digital technologies, which has given rise to the concept of open banking. While some argue that open banking may cannibalise traditional banks, others believe it has the potential to enable banks to thrive in the digital era.


The rise of open banking

Open banking emerged as a result of the digital transformation that banks embraced from the early 2000s to the 2010s. By digitising their operations, banks gained the ability to leverage client data and generate additional revenue streams.

Open banking refers to the practice of sharing financial information securely and efficiently through secure application programming interfaces (APIs) between different financial institutions and even third-party providers. This sharing of data allows customers to access a variety of financial products and services that are tailored to address their needs, ultimately establishing fierce competition and catalysing innovation.


Driving factors for adopting banking-as-a-service

A survey conducted among banks reveals several reasons for the focus on banking-as-a-service (BaaS). Approximately 77% of banks focus on BaaS to remain competitive in the market and be at the forefront of innovation, while 49% see it as a perfect opportunity to build an additional revenue stream. Moreover, 40% of banks have adopted BaaS to counter threats posed by fintech companies. On the other hand, banks that assigned a low priority to BaaS cited reasons such as focusing on other strategic opportunities (74%), perceiving it as a limited revenue opportunity (63%), or lacking clarity on how to initiate and grow their consumer base (37%).


A shift from VPN integrations to seamless, secure API connections

In the dynamic world of open banking, a profound transformation is underway. The days of VPN integrations are gradually giving way to the power of seamless, secure API connections. This shift has revolutionised transactions, offering users an unparalleled experience that is smooth and hassle-free. With APIs taking centre stage, the focus has shifted towards prioritising customer experience and adopting a customer-centric approach.

The benefits of this paradigm shift are vast and impactful. Not only does it streamline customer experiences, but it also propels open banking towards new horizons. Embracing secure API connections ensures transactions are conducted seamlessly, enhancing user satisfaction and bolstering trust in the banking ecosystem.

Ultimately, the goal of open banking is to bundle these solutions into more integrated and comprehensive offerings that address customer needs holistically.


Unlocking the potential of open banking with financial inclusion

The anticipated revenue from BaaS is projected to reach US$180bn by 2027. However, despite the immense potential, many banks still face challenges in embracing open banking.

Although fintech companies have embraced API-first development, financial institutions such as banks have the potential to present numerous opportunities for companies to leverage open banking in addressing the pressing issue of financial inclusion.

Currently, a significant portion of MSMEs rely on unlisted money lenders for their financing needs. This trend persists primarily because of the arduous loan application process for all parties involved. MSMEs are dissatisfied with the lengthy processing time, which is impractical, while banks find it less cost-effective to handle and dedicate time to smaller-value loans. Unlisted private lenders seize this untapped market opportunity, resulting in MSMEs securing loans at exorbitant interest rates. Moreover, these unlisted money lenders impose unregulated rules and practices, impeding the growth of MSMEs.

Open banking can be used to create new credit scoring models that are more inclusive of the unbanked and underserved. These models can use data from a variety of sources, including social media, mobile phone usage and online shopping habits, to assess a person’s creditworthiness. This can help to ensure that people who are creditworthy but have limited access to traditional financial services are able to get the loans they need to start or grow their businesses. Boardroom conversations in banks should focus on strategising and aligning business goals with open banking to propel such initiatives.


Addressing regulatory concerns

Security and privacy concerns are of utmost importance in an environment where data sharing becomes more prevalent. Striking the right balance between accessibility and robust security measures is crucial for building trust among customers. Additionally, regulatory frameworks must keep pace with the rapid advancements in open banking to ensure consumer protection and fair competition.



Open banking has sparked a spirited debate within the financial industry, raising questions about the future of traditional banks. While concerns of cannibalisation persist, it is essential to view open banking as a catalyst for positive transformation rather than a threat.

Developing markets should prioritise the adoption of open banking as a means to provide improved financial access for MSMEs within their economies. Embracing open banking has the potential to accelerate growth and development in these nations. It offers a chance for banks to innovate and find solutions to these challenges. By embracing the concept of BaaS and prioritising customer experience, banks can position themselves at the forefront of innovation and secure their relevance in an increasingly digital world. With proper governance and regulatory frameworks in place, open banking can pave the way for a more interconnected and customer-centric financial ecosystem.