Open Banking 101 - Mumbai FinTech

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Open Banking 101Niyo Solutions

Agenda1.Introduction to Open Banking:Business modelsOfferingsPartnership strategies2.Business and operating model of Open Banking3.Open Banking in India4.Open Banking Case Studies5.Common myths about Open Banking6.Conclusion: Flash in the pan or next big thing in banking?2

1. Introduction toOpen Banking3

What is Open Banking?“Banking beyond physical walls” The term “Open Banking” was first coinedin 2017 No physical branches Financial services via Digital Channels: Smartphones Web interfaces4

Traditional banks vs open banksTraditional BanksOpen Banks Business functions siloed intodistinct departments Modelled on scalable openplatforms Rely on “physical touch model” Usually integrate withtraditional banks through openAPIs, making them: Feet on street sales forcesBranchesPhysical distribution models ScalableNimbleFlexible5

Customer experience is at the heart of Open BankingIntuitive andinteractive experienceFeature richMobile InterfaceFast, simple, paperlessaccount openingSpending analytics,budgeting toolsTransparent pricingCustomer experienceConsumers feel understoodand well-catered to6

Features of Open BankingMore than just UI/UX Value added offerings andnon-financial toolsNot offered by a traditional bank.A scalable, flexible,platform-based business model Scalable, flexible and not segregated.Frees the constraints faced by largetraditional banksEnabling rapid adaptation in businesslandscapes and evolving customerexpectations.Neo-banks put the customer atthe centre of everythingSimplicity, trust, control, and digital self-service Collaborate instead of compete Mutual benefits of collaboratingEcosystem–made up of traditional banks,non-bank lenders (NBFCs) and insurersInorganic growth through partnerships.7

History of Open BankingAtom Bank (UK)Monzo (UK)Xinja (Australia)Founded in 2014, Atom Bank wasgranted its own banking licencein 2015.Restrictions lifted from bankinglicense (acquired in 2016) - startsto offer “current accounts”Granted full licence as anAuthorised ank Market, MozoFintech News HK201720202019Neat (Hong Kong)Revolut (UK)Begins beta-testing “a newbanking experience that isentirely digital targeted atmillennials.”Lands specialised bankinglicense with European CentralBank.Almost 40 active Neo-banksaround the globe: India, Brazil,Russia, U.A.E., Italy, USA, UK,Egypt, Denmark, etc.8

Open Banking Market Size 395billionGrowing at 46%between 2019-2026GlobalNeo-bankmarket size 27billion9202020192021202220232024202539 million 3-4 millionEstimated number ofNeo-bank customersgloballyEstimated number ofNeo-bank customersin IndiaSource: PWC research, Business Insider20269

Relative Performance: Traditional Vs Open BanksOpen banks’ ability to offer fast, transparent models along with their low-cost structure and superior UX are keyfactors influencing customers’ growing preference for them over traditional banks.Consideration factorSpeedTransparencyLower costsUser experienceImproved financialwellnessDescription Fast and simple account opening (5-7 minutes) Simple form filing, direct video callRelative performance:Banks vs open-banks012345 No hidden fees & charges, minimum accountbalances etc.012345 Minimum/No fees like overdraft and monthly fees No forex markup, foreign ATM withdrawal fees012345 100% digital and mobile platform Feature rich platform and tools Intuitive, interactive experience012345 Smart ways to help customers save Spend analytics, budgeting tools012345Source: Neo-bank research in USA & UK by Finnovate Research, Oct 2018Traditional banksOpen banks10

Relative Performance: Traditional Vs Open BanksOmni-channel experience, value-added services and next-generation customer support are other factorsdriving customers’ adoption of open-banks.Consideration factorMicro-segmentinclusionNext-gen customersupportLifestyle scription SMBs, gig economy, lower-income households, women Socially-conscious banking/impact lendingRelative performance:Banks vs open-banks012345 Chatbots, video banking, and interactive content Real-time customer service, accessible 24X7012345 A-la-carte model catering to lifestyle and preferences Network of tools to help achieve financial goals012345 Optimal channel-mix designed to each customer Data integration engine for unified customer view012345012345 International payments Multi-currency accounts Crypto currencies, gamification, digital vaultsSource: Neo-bank research in USA & UK by Finnovate Research, Oct 2018Traditional banksOpen banks11

2. Business andoperating model ofOpen Banking12

Open Banking:Customer Value Propositions1.Cross-border travel payments Zero Forex MarkupHassle-free ATM access globallyTravel related tools, contentNo hidden fees and charges3. Salary account for working classes Zero balance, easy to use digital salaryaccountIntuitive, vernacular appDoorstep banking accessPaperless, digital onboarding2. SME current accountsSimple and easy to useSingle interface for vendor payments, taxfiling, accounting and invoicingOverdrafts, working capital 4. Bank accounts for gig economy workers No/flexible minimum balancerequirementsSimplified requirements for income andaddress proofs13

Open Banking:Marketing StrategyFocus a lot on organic customer acquisition and customer retention through superior,seamless customer journeys and engagement.CustomerreferralGlobal leaders such as Revolutaim to acquire 80% customersthrough referral route, drivingdown acquisition costsCustomizedcustomerengagementContextualized, customerengagement through paignsViral marketing strategiesWaitlist for in-demand productvariants (ex. metal card)No mass bombardment14

Open Banking:Innovation on CX and simplified processesCustomer experienceUser convenienceSimplified processesMore connected to personalfinancesDigital interface makes it moreconvenient for consumerSave time via simplifiedfinancial transactions15

Open Banking:Building blocksA modular, flexible platform approachUse cases / value propositionsCustomer segments 16

Open Banking: A product platform viewAn open ecosystemapproachA digital banking ecosystemcentred around the customerStrategic partnerships17TraditionalBankOpen BankCore productA flagship product with aunique customer valueproposition.APIsOpen-bank’sapplication layerAPIsEco-system viewThen other product/transaction layers are aditional Bank’s coreinfrastructure platform17

Open Banking:Strategy and Business ModelOpen Banks are changing the game by offering Banking-as-a-Platform.Traditional banking modelProduct centricOpen Banking modelPlatform centricBranchesMarketplace communityHigh verticalization of productsNo strong communities around the brand/productLarge branch/networkHigh customer acquisition & servicing cost (high touch model) High community engagement with the productHorizontalization of products with best-in-class appsMobile/digital only distribution and servicing (low customeracquisition cost) Legacy tech infrastructure rdOutdated, hard to integrate with 3 party service providersOpen tech platformsOpen architecture technology stack, Open Banking through APIsOpen ecosystem allowing access to external developers Product centric business Data driven businessBanking data divided into silosMix of paper-based and online dataDifficulties in reconciling, monitoring data Product centric org design Products and verticals drive P&L, organization structureand KPIsReal-time data integration and managementData powers business model through 3rd partyaffiliation feesCustomer centric org design Customer segments drive P&L, data architecture andKPIs18

Leading Open Banks have high cost efferences1Lower customer acquisition costs Lower customer servicing costs2 Branchless (low physical touch model)Effective use of technology (chatbots, WhatsApp chat, AI based assistant, etc.)Fundamentally better app/product designBack-end outsourcing3 4 20% cost of traditional retail banksCustomer acquisition effort driven largely by viral marketing, customer referrals and socialmedia.Achievingprofitability,however, remains achallenge, givenrising pricingpressureOutsourced back-end technology stacks result in lower capital expenditure and fastertime-to-market (ex. N26 and Tandem)Niyo leverages tech capabilities of network partner, cross-sell partners, etc., aided by an opentech architecturePrice competitiveness UK: challenger banks pay roughly 2x the savings rate of traditional banks (0.92% versus 0.44% forthe average easy access account). US: rates on deposits are 3x higher at online/digital banks compared to traditional banks (0.79%versus 0.27% for a 12-month CD).19

How Open APIs Work:OverviewDevelopers connect to a third party’s open API. This third party can be a bank,fintech, or other service provider. Because the API is open, any developer canconnect to it.Customer requestsa service from the thirdparty (eg: to view anaccount balance) frominside the developer’s app.The request is sent usingthe API.Third party receivesthe request, and systemsautomatically send databack using the API.

Benefits Of Open API ModelMarketplace A curated selection of thenest money-related apps. Open API’s to allow otherdevelopers and FinTechs tobuild functionalities overtheir infrastructure Integration With ThirdParty Platforms Financial API’s enablebusiness users to swiftly andsecurely request access toaccount data Automation platforms allowusers to connect to otherapps and devicesPositive user experienceand higher transactionactivitySource: Neo-banks, Performance and New Ideas - October 2018Categorization EngineAnd Smart Nudges Integration offers usersaccess to it’s proprietarycategorisation engine andtowards making wellinformed monetarydecisions21

Benefit Of Open API Model:Paypal / SiriIntegrationPaypal users can send andrequest money with a voicecommand with Siri.Some ExamplesTelefónica Deutschland’sO2 BankingTransactions with mobile numberas well as small instant loans andbetter mobile data plans.Payments WithFacebook MessengerFacebook Messenger users cantransfer money to their friendswithout leaving the application.Simply say “Hey Siri, send 50 to Bill using PayPal.”Source: Neo-banks, Performance and New Ideas - October 201822

3. Open Bankingin India23

Banking landscape in IndiaTraditionally, banking has been a very largeand profitable business in India. Bankingrevenue pool estimated at 12 bn*Advances: 1.4 tnDeposits: 1.8 tnRevenue: 12 bnIn the past few years, 2 new breeds ofchallenger banks have emerged*Source: BCG FIBAC Report 2017, estimateextrapolated using industry growth rateDominated by few large public and privatesector banks such as SBI, HDFC Bank, ICICIBankMarket share of Indian banks by totalbusiness (deposits advances)SBI23%HDFC Bank8%ICICI Bank7%Bank ofBaroda7%Differentiatedbanks withlicenseOpen-banks24

Open banks in India are focusing on creating nichesNo one size fits all Banking in India is not uniformHero Product Several Open BankingBuild a compelling use case Build unique, differentiated use casesplatforms focus on first creatingfor pockets of large, untapped marketa “Hero Product” to address asegments such as SME accounts,niche market segments withspecific customer problem areasalary banking for underservedunaddressed customer painand then look to expand theirsegments such as working classes &points and problem statementsproduct and service offeringsgig economy workers, bank accountsto be solved.such as lending, wealthfor millenials and studentsor universal by and large. There are several pockets ofmanagement, insurance etc.Banking in India is hugely competitive but a profitable play. There is ampleopportunity for Open Banking platforms to create a niche for themselves.25

Open Banking strategy in IndiaCreate customer experiencelayer on backendWork with a partner bank Digital/virtual banking licensesnot available. Customer deposits can be heldonly in bank accounts. This enables more security andstability for customers. This is where the productLean, platform-centricoperating model Instead of traditional, product centricdevelopment, innovation andsiloed organization design, build a leandifferentiation takes shapeand efficient platform centric operatingmodel. Collaborative, open API architecture Focus on leveraging power of big data, AIand machine learning26

Use case 1: Market Opportunity for Salary AccountsBoth blue-collared and white-collared corporate salary banking are huge marketsin IndiaMarket size of salary accounts in IndiaTotal Population of India 1.34 BnTotal Population in Working Age 980 MnTotal Employed: 406 MnTotal Wage & Salaried 281 MnOrganized (EPFO membership): 45 MnUnorganized 236 MnTotal Blue CollaredWorkforce 100 Mn 3 bnrevenue poolTotal White CollaredWorkforce * 23 Mn 7 bnrevenue poolSource: Income tax filing data for2018-19*Annual income file 3.5 lacs 27

Use case 2: Market Opportunity for Cross-border TravelPaymentsInternational travel payments is already a huge market, and growing at a fast pace26 MTourists from Indiatravelled abroad in 2018 22 B50 MProjected to almostdoubleby 2020 (WTO estimate)Total forex spending by Indianoverseas travelers in 2018Prepaid forex card 4BDebit/credit card 5B 850Forex spend by anaverage Indian travelerCash 13B 1 bnrevenuepool28

Digital Banking LicenceGLobally, there are digital-onlyopen banks with a full fledgedbanking licensePartnershipsDigital-only platforms partner withtraditional banksGlobal examplesNot likely to happen in India soon,regulations don’t permit digital/branchless banking licenseIndian examplesConfidential & Proprietary - Niyo SolutionsIndian regulations requires open banks to partnerwith licensed banks29

Requirements to obtain banking license in IndiaExisting Private SectorEntitiesIndividualsPromoters 10 year trackrecord of success 10 years ofexperience 10 year successfulhistory Should be “fitand proper” Must becontrolled (notowned) byresident Indians Must be from thefinance/bankingarea 60% assets andincome from financialdomain (if assets 656 million) No wilfuldefaultersCapital Needed 65.6 million(with continued net worth of atleast 65.6 million)Ownership specifications Promoters: at most 40%(if more, must bring down to 40% within first 3 years) No more than 10% voting rights to entities otherthan promotersConfidential & Proprietary - Niyo SolutionsNBFCsObtaining a full fledged bank license in India is challenging and time consuming for fintechs /Open Banking platforms due to requirements of high capital infusion, large scale physicaldistribution presence, compliance, track record of promoters and domestic shareholding30

4. Open BankingCase Studies31

Case Studies:Global

Open Banks around the worldEstablished in 2015 and services expand toover 28 countries.Customer base of 7 mn Junior accountsSavings VaultsInsuranceTradingCryptocurrencyPrecious MetalsMonzo launched in 2016, the number ofmobile banking users around the world- 47%Currently services provided only in UK toover 4.5 million users.Partnership with Barclays and LloydsBank.33

Open Banks around the worldFounded in 2013, its services are offered toover 23 European countries.Customer base of 3.5 mnOffers a basic account with no monthly feeand charges no fees for credit cardpayments in foreign currencies.Founded in 2013 and is the largest FinTechin Latin America.Customer base of 12 mnOffers a digital account, an internationalcredit card, both without fees.34

Open Banking:Global Leaders# Years in operation4.5576.5Customer segmentsRetail And BusinessRetail And BusinessRetail And BusinessRetail And Waitlist ForBusiness# customer base(mn)74.53.512Home countryUKUKGermanyBrazilOperating revenueper customer 8.3 3.63 0.31 1.59Operating cost percustomer 13.17 23.76 10 14.68Operating profit/lossper customer- 4.87- 20.13- 9.69- 13.09Valuation percustomer 250 799 224 156835

Product Portfolios of select Open BanksSavings AccountCurrent/ equivalentbusiness accountPrepaid cardCredit cardGlobal card(no forex markup)International transferInvestmentsPersonal loanBusiness loanInsurance36

Open Banking Case Studies:India

Open Banking in IndiaFounded in 2015, first and largestOpen-bank in India today, with around 1musers.Operates in 3 main businesses (retail focus): Niyo Bharat: Prepaid salary accountfor working classesNiyo Global Card: Zero forex markuptravel cardNiyo-IDFC First Bank Savings AccountPartnership with IDFC Bank, DCB Bank andYes BankSME focused Open-bank founded in 2017Helps small and medium-sized businesses tomaintain multiple bank accounts, accountingand bookkeeping of their daily spending, availbusiness loans, pay vendors and receivepayments through payment gateway, andpay salaries to employees.Offers current accounts in partnership withICICI Bank.38

Open Banking in IndiaFounded in 2019, digital banking platformfocused on Bharat (financially unserved andunderserved segment)Founded in 2019, digital banking platformaiming to offer nicer and superior bankingexperience.Recently launched prepaid salary accountproduct for blue-collared workers working inSMEsPlanning to launch debit card and savingsaccount product in partnership with aleading bank.39

5. Common mythsabout OpenBanking40

Mythbusting: Clearing the misconceptions“The money deposited in my OpenBanking account is not secure”Money deposited in a neo-banking account is assecure as it would be in a regular bank accountin India. All the open-banks in India work on apartnership model with traditional banks.This means that customer funds are parked inan underlying bank account.“I am unable to access my money”Established, full- stack open-banks typicallyprovide their customers with full access to ATMwithdrawals.For example, at Niyo, customers are allowed towithdraw funds from ATMs both in India andabroad and transfer funds to their bank accounts24X7 via the mobile app.“Not enough customer support”Customers can contact open-bank customer supportvia phone, IVR, email, online chat, in-app chat,Whatsapp, etc.A customer support team provides 24X7 access tocustomers through all the aforementioned channels.41

Mythbusting: Clearing the misconceptions“I have data security and privacy concerns”Digital presence Higher Emphasis On Security Locking/Unlocking the entire card or anyspecific transaction typeATM and login PIN resettingSetting transaction limits depending on thechannel or type of transactionHiding account balance and card numberwithin the appLive transaction updates and detailedtransaction history log42

6. ConclusionFlash in the pan ornext big thing inbanking?43

Open Banking:135Future ProspectsAddressable market segments in retailand SME space are large and profitableDeep product and tech integration withpartner banks through APIsOpen Banking architecture adopted by manylarge banksGlobally proven business models beingcustomized for India246Low infrastructure costs, value passedon to customersGreat emphasis on customer experience(UI/UX, seamless transactions)Ubiquitous availability of affordablesmartphones, cheap data plansHuge market, space for traditional banksas well as Open-banks to thrive together,often through collaboration44

Open Banking:Future ProspectsFocus On Channel Shift:Transition to digital banking will initiatea behavioral change.Opportunities Abound:Massive opportunity in the SME, blue-collarsegment, etcFavourable Regulatory Policies:Financial innovation will encourage startups toenter the market.UPI and BHIM in Indian ecosystem.45

Looking aheadOverall bankablepopulation in India: 500-600 millionExpected reach by Open Banks:50% in the next 3-4 years46

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Open Banking 101 Niyo Solutions. 1. Introduction to Open Banking: Business models Offerings Partnership strategies 2. Business and operating model of Open Banking . 20% cost of traditional retail banks Customer acquisition effort driven largely by viral marketing, customer referrals and social media. 1 Back-end outsourcing

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