How Open Banking and Instant Payments are Changing Financial Services

Sriram Kannan
Feb 6 · 5 min read

Technology has changed the way we make payments with online businesses paving the way for innovative payment solutions. Entry of FinTechs and non-banks into the payments space has created a massive disruption in the financial services industry.

Undercutting the need for hard cash or conventional payment options, these new technologies allow customers to link their bank accounts to internet-based wallets and smart devices. Backed by investors, fintechs and their user-friendly technology have been well received by customers. As per the EY Global Banking Outlook 2018, adoption of FinTech providers for money transfer and payment services has risen from 18% in 2015 to 50% in 2017 and that number is expected to grow exponentially in the near future.

Access and Speed

Two tenets, access (open banking) and speed (real-time payments), are coming together to change the financial ecosystem around the world. Real-time payments, also called instant or immediate payments, are a significant part of the change occuring in the financial services industry. Through real-time payments, transactions can be completed in seconds rather than days. Called IMPS in India, NPP in Australia, FPS in UK, it is transforming the nature of transactions across the globe. With real-time payments and open banking, merchants are able to settle receivables and payables amongst themselves by leveraging non-banking networks faster than ever before.

Open banking, even in an internet or mobile banking context, makes it possible to transfer money between accounts using third party services. All the customer would need to do is login to a service like Paytm and connect a UPI ID. It would then be possible to perform repeated transactions without having to log in to the respective bank accounts, even in the case of multiple accounts.

Now that third parties are able to build around financial services, we have greater access and transparency in our transactions. In the past, banks were able to maintain a record of transactions but the introduction of online wallets and other payment methods has meant that banks would only receive a transfer request to the wallet and have no clue where the money was spent.

Faster Settlements

Increases in speed and access are gaining significance on both the retail and corporate side. In retail, people have the ability to make instant payments using third party apps like Paytm instead of a particular established bank. While most people relied upon financial services companies such as Visa and Mastercard for years, fintech companies like WeChat Pay and Alipay have replaced card swiping with a mere scan of a QR code. As consumers enjoy the freedom to use either a credit card or payment method of their choice, merchants enjoy faster settlement and greater online access to consumers who use these platforms.

Varied Solutions

Innovation fuelled by FinTechs is changing the financial services landscape and forcing banks to rethink their business models. FinTechs are agile, customer experience oriented and focused on providing greater value for services. A lot of FinTechs are investing in completely new technologies and coming up with innovative solutions to customer needs.

FinTechs are more than happy to answer the need for transparent banking services and efficient storing and transferring of money, providing solutions that circumvent traditional financial structures. Financial technology is now being adopted in everything from customer service, chatbots and machine learning to blockchain.

Need for change

Recent research from analyst firm Ovum, commissioned by Icon Solutions, has revealed that commercial banking is set to go real-time, enabled by real-time payments (RTP).

The report found that in the short term, real-time services are viewed as essential to effectively compete for corporate clients. In the long term, real-time payment (RTP) infrastructure will become the foundation for banks to transition into an open banking environment.

Many banks are realizing that this is a unique opportunity to put in place systems that will enable them to address the challenges of digitalization and the emergence of new open banking ecosystems where the sharing of customer data is the norm.

The next wave of technological innovation with rapid prototyping, reliable scaling at low cost, and emphasis on an optimised time-to-market. Innovation will continue to drive the market.

Collaborative Approach

While FinTech are trying to push across a certain business model where it is really not dependent upon banks distribution channels, banks are looking to up their performance in the financial services industry. An overlap exists where FinTechs can leverage customer trust and the network available with big banks to complement each other in their ability to provide better services to customers.

From a competitive perspective, traditional financial institutions and fintech firms now understand that collaboration may be the best path to long-term growth. E.g.: BNP Paribas launched a special investment fund that aims to take minority positions in the most promising FinTechs. They adopt a policy of co-construction with innovative businesses to meet two main goals — to rethink the banking experience and to accelerate the bank’s positive impact on society.

According to the World Fintech Report 2018 from Capgemini and LinkedIn, in collaboration with Efma, successful collaboration will rely heavily upon traditional institutions’ ability to identify and assess whether candidates for partnership have the characteristics necessary for sustained success across four pillars:





Success of Bank+Fintech collaboration rests on the ability to deliver the level of personalization, speed, contextuality, and seamless delivery to defend positions against the threat of the more pronounced competition that could come from the likes of Google, Amazon, Facebook and Apple (GAFA) or challenges from Alibaba and Tencent.

Looking at the Indian FinTech ecosystem, we have seen FinTech companies move away from pure digital wallets and begin to partner with banks. While fintech companies like Freecharge were once as popular, Paytm diversified its business model to include other services beyond wallets. While apps like PhonePe and Google Pay are focusing on UPI-based transactions, Paytm is forming partnerships with full fledged commercial banks to provide a unique value proposition.


Once seen as competition, big banks are warming to the concept of collaboration with FinTechs. Whether through crowdfunding platforms, neobanks or insurtechs, the links between FinTechs and banks have become increasingly close. But even with the best collaboration, the ability for legacy and fintech organizations to compete in the retail banking ecosystem will be challenged by the BigTech powerhouses.

For commercial clients, banks still own a majority of the relationship and continue to retain a position of trust. Open banking for commercial clients could provide larger opportunity than retail. Ultimately, commercial bank customers want the same thing as retail bank customers and it will be up to banks to seize this opportunity and stay relevant in a changing landscape.

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Sriram Kannan

Written by

Technology Leader | Payments and Cash Management | Global Delivery | Senior Director @CapgeminiIndia