Open Banking Vs Tradinal Banking

1. What is Open Banking?

Open banking is a system where banks allow secure sharing of financial data with authorized third-party providers (TPPs) through APIs (Application Programming Interfaces), with the customer’s explicit consent.

Key points:

• Customers own their financial data and can choose to share it.

• Fintechs, payment providers, and other apps can access bank data to offer personalized financial services.

• Data sharing is secure and regulated, ensuring privacy and protection.

Examples of Open Banking Services:

• Aggregating all bank accounts in one app (e.g., Mint, YONO by SBI)

• Instant loan eligibility checks by fintechs

• Payment initiation from a third-party app

• Personalized investment advice based on customer spending and savings

2. How It Differs from Traditional Banking

Feature	Traditional Banking	Open Banking
Data Control	Bank owns the customer’s data.	Customer controls their data and decides who can access it.
Third-Party Access	Usually limited or not allowed.	APIs allow authorized fintechs to access account info or initiate payments.
Innovation & Services	Services mainly provided by the bank itself.	Fintechs and third parties can innovate on top of bank data.
Customer Experience	Limited personalization; mostly bank-driven products.	Highly personalized and integrated services; apps aggregate data from multiple banks.
Technology	Core banking systems with internal APIs.	API-first architecture enabling secure real-time data sharing.
Payment Handling	Bank processes payments internally.	Payments can be initiated via third-party apps with customer consent.

3. Key Benefits of Open Banking

• For Customers: More personalized financial insights and services.

• For Banks: Opportunity to partner with fintechs and increase engagement.

• For Fintechs: Access to real banking data without building the entire banking infrastructure.

• Innovation: Enables new products like “one app for all accounts,” instant lending, automated investments, etc.

In short:

• Traditional banking is closed and bank-centric.

• Open banking is open, customer-centric, and API-driven, enabling secure collaboration between banks and fintechs for innovative financial services.

Traditional Banking Flow :

1. Traditional Banking Flow

1. Customer Request:Customer visits bank branch or online banking portal for services (balance check, payments, loan application).

2. Bank Processes Request:Bank’s internal systems handle the request.

3. Data Sharing:

   • Data stays within the bank.

   • Third-party apps cannot access data unless the customer manually shares statements.

4. Service Delivery:Bank provides service directly (transfer funds, issue loan, etc.).

5. Customer Experience:

   • Limited personalization

   • Manual interventions needed for cross-bank services

How a fintech app interacts with a bank in open banking:

Step 1: Customer Consent

1. The customer uses a fintech app (e.g., for budgeting, loans, or payments).

2. The app asks the customer for explicit consent to access their bank data.

3. The customer authorizes which data (account balances, transactions, etc.) can be shared.

Step 2: Authentication & Authorization

1. The fintech app redirects the customer to the bank’s secure authentication portal.

2. The customer logs in to their bank account securely.

3. The bank generates a token (OAuth2 / OpenID Connect) confirming consent and authorized data access.

Step 3: API Request

1. The fintech app uses the token to call the bank’s open banking APIs.

2. APIs can provide:

   • Account information (balances, transactions)

   • Payment initiation

   • Loan or credit data

Step 4: Data Retrieval / Payment Initiation

1. The bank validates the request using the token.

2. If valid, the API returns the requested data to the fintech app in real-time.

3. For payments, the API initiates the transaction on behalf of the customer.

Step 5: Data Utilization by Fintech

1. The fintech app analyzes the retrieved data:

   • Budget tracking

   • Investment recommendations

   • Loan eligibility

   • Fraud monitoring

2. The app presents personalized insights or initiates services for the customer.

Step 6: Secure Logging & Auditing

1. Every API request and data transaction is logged securely for audit and compliance purposes.

2. The customer can revoke consent anytime, which stops further data sharing.

Step 7: Continuous Updates

1. Open banking APIs allow real-time updates, so fintech apps always have the latest account info.

2. The customer experiences a seamless, personalized banking service without manually sharing bank statements.

In short (text-only):

Customer → Grants Consent → Bank Authenticates → Fintech Calls Bank API → Bank Shares Data → Fintech Provides Service → Logs & Audits → Customer Benefits

Summary (Text-Only)

Aspect	Traditional Banking	Open Banking
Data Control	Bank	Customer
Third-Party Access	Limited	Authorized via APIs
Personalization	Low	High
Service Innovation	Bank-driven	Fintech + Bank collaboration
Payment Handling	Bank only	Can be initiated via fintech apps
Data Sharing	Manual, internal	Secure, real-time, API-driven

Customer -Amit Walkthough for a personal loan of 5 lakh

==========

1. Traditional Bank Experience

1. Customer Action:Amit logs into his bank’s mobile app.

2. Data Access:

   • Bank uses Amit’s internal account data (salary, savings, credit history).

   • No data from other banks or external accounts.

3. Recommendation & Approval:

   • Bank’s ML model instantly evaluates Amit’s eligibility.

   • Provides a personalized loan offer only from its own products.

   • Instant approval possible if criteria met.

4. Application Process:

   • Amit applies within the bank app.

   • Loan is disbursed after internal verification.

5. Customer Experience:

   • Quick approval for bank’s own loan products.

   • Limited choice; cannot compare with other banks’ offers.

   • App experience restricted to one bank.

2. Fintech Experience (Open Banking)

1. Customer Action:Amit opens a fintech app (loan aggregator).

2. Consent & Authentication:

   • Amit authorizes access to multiple bank accounts via open banking APIs.

3. Data Retrieval & Aggregation:

   • App collects balances, transactions, credit history, loans, and salary accounts across all his banks.

4. AI-Based Analysis & Recommendation:

   • Fintech’s ML model evaluates Amit’s eligibility across multiple banks and lenders.

   • Presents the best loan offers from several banks with interest rates, tenure, and monthly installments.

5. Application Process:

   • Amit selects the preferred offer.

   • App initiates loan application through bank API or redirects for e-KYC.

   • Loan disbursement can be almost instant.

6. Customer Experience:

   • Holistic and personalized recommendations.

   • Compare multiple bank offers in one place.

   • Real-time, seamless, multi-bank management.

Key Differences (Text-Only)

Feature	Traditional Bank	Fintech (Open Banking)
Data Source	Single bank only	Multiple banks aggregated
Recommendation	Only bank products	Best fit across banks & lenders
Speed	Instant for own product	Instant across banks
Choice	Limited	High, can compare
Innovation	ML model for bank	ML model + cross-bank AI insights
Ecosystem	Closed	Open, integrates apps, wallets, investments

Conclusion:

Even though traditional banks now offer instant approval and AI-based personalization, fintechs still lead in cross-bank aggregation, choice, and multi-service integration, giving customers more control and broader options.

How does Fintech App-say Loan aggragator aggregate data across a Bank or Multiple Bank

=====

Scenario: Amit wants a personal loan via a fintech app

Banks Involved: ICICI, HDFC, SBI

Fintech App: Loan aggregator

Goal: Retrieve account info from all banks, evaluate loan eligibility, recommend best offer

Step 1: Customer Consent

1. Amit opens the fintech app.

2. App shows: “Do you want to share your bank data from ICICI, HDFC, SBI for loan recommendation?”

3. Amit selects the banks and explicitly grants consent.

✅ Important: Without consent, no data is shared.

Step 2: Authentication & Token Issuance (OAuth 2.0 Flow)

For each bank, the process is similar:

1. Fintech app redirects Amit to the bank’s secure login portal (ICICI, HDFC, SBI).

2. Amit logs in using bank credentials.

3. Bank validates Amit’s identity and confirms consent for the requested data scope.

4. Bank issues an access token (OAuth 2.0 / OpenID Connect) to the fintech app:

   • ICICI token → for ICICI APIs

   • HDFC token → for HDFC APIs

   • SBI token → for SBI APIs

🔹 Each bank issues its own token. Fintech cannot generate tokens; only the bank can after authenticating the user.

Step 3: API Calls to Retrieve Data

Fintech app uses the tokens to call open banking APIs provided by each bank:

1. ICICI APIs:

   • GET /accounts → fetch account balances

   • GET /transactions → last 6–12 months of transactions

   • GET /loans → existing loans

2. HDFC APIs:

   • GET /accounts

   • GET /transactions

   • GET /loans

3. SBI APIs:

   • GET /accounts

   • GET /transactions

   • GET /loans

Bank Response:

• JSON data containing account info, transactions, credit/loan info.

• Only data allowed per scope is shared.

Step 4: Data Aggregation in Fintech App

1. Fintech app collects data from all banks.

2. It normalizes the data into a unified format (same field names, currency, account types).

3. Aggregated data looks like:

{
  "ICICI": {...},
  "HDFC": {...},
  "SBI": {...}
}

Step 5: AI/ML Analysis for Loan Recommendation

1. Fintech app runs ML models on aggregated data:

   • Total account balance

   • Monthly cash flow

   • Existing loan obligations

   • Credit score (if provided by banks)

2. Calculates:

   • Loan eligibility

   • Recommended loan amount

   • Optimal interest rates and banks

Step 6: Display Recommendations

1. Fintech app shows Amit best loan options across banks:

   • “ICICI Bank: ₹5 lakh @ 10.5% p.a.”

   • “HDFC Bank: ₹4.8 lakh @ 10.2% p.a.”

   • “SBI: ₹5 lakh @ 10.6% p.a.”

2. Amit selects the preferred bank and proceeds with the loan application.

Step 7: Loan Application via API

1. Fintech app can initiate the loan application using the selected bank’s API:

   • POST /loan/application with Amit’s verified data

2. Bank receives application, verifies KYC, approves, and disburses.

🔹 Fintech app is only an orchestrator, not the lender.🔹 All actions require the user token issued by that bank.

Step 8: Continuous Updates

• Open banking APIs allow real-time updates for account balance, transaction history, and loan status.

• Amit sees updated status across all banks in one app.

Text-Only Flow Summary

Customer (Amit)
      |
      |---[Consent]---> Fintech App
      |
      |---[Redirect Login]---> ICICI / HDFC / SBI
      |                        (Bank Authenticates)
      |
      |<--[Access Token]------ Bank (ICICI/HDFC/SBI)
      |
Fintech App ---[API Calls using Tokens]---> Bank APIs
      |
      |<--[Account & Transaction Data]---- Bank APIs
      |
Fintech App (Aggregates Data, Runs ML Models)
      |
      |---[Loan Recommendations]---> Customer
      |
Customer selects bank & applies via fintech
      |
      |---[POST /loan/application]---> Bank API
      |
Bank processes & disburses loan

✅ Key Takeaways:

1. Each bank issues its own token for secure API access.

2. Fintech app aggregates data after receiving consent and tokens.

3. ML/AI models run on aggregated data, giving multi-bank recommendations.

4. Customer gets real-time, cross-bank insights and options.

Step-by-Step Token Flow in Multi-Bank Open Banking

1. Customer Chooses BanksAmit opens the fintech app and selects ICICI, HDFC, SBI to share his data.

2. Redirect to Bank Portals

   • ICICI: Amit is redirected to ICICI’s secure login portal.

   • HDFC: Amit will later be redirected to HDFC’s portal.

   • SBI: Amit will later be redirected to SBI’s portal.

3. Login & Consent at Each BankFor each bank:

   • Amit logs in with bank credentials.

   • Bank verifies identity.

   • Bank confirms the scope of data Amit is allowing to share (transactions, account info, loans, etc.).

4. Token Issuance

   • ICICI issues ICICI access token → fintech uses this to call ICICI APIs.

   • HDFC issues HDFC access token → fintech uses this to call HDFC APIs.

   • SBI issues SBI access token → fintech uses this to call SBI APIs.

✅ Yes, the fintech app will have three separate tokens, one for each bank.

5. API Calls Using Tokens

   • Fintech app uses ICICI token → calls ICICI APIs to fetch account/transaction data.

   • Fintech app uses HDFC token → calls HDFC APIs.

   • Fintech app uses SBI token → calls SBI APIs.

6. Data Aggregation & Analysis

   • All responses from the three banks are aggregated in the fintech app.

   • ML/AI models analyze multi-bank data to generate personalized recommendations.

7. Token Scope & Expiry

   • Each token is valid only for the specific bank and for the scope Amit consented to.

   • Tokens have expiry times, and Amit may need to re-authenticate after expiry.

Text-Only Flow Summary (Tokens)

Customer (Amit) selects banks → Fintech App
      |
      |---[Redirect]---> ICICI Bank Portal
      |        Amit logs in & consents
      |<---[ICICI Token]--- ICICI Bank
      |
      |---[Redirect]---> HDFC Bank Portal
      |        Amit logs in & consents
      |<---[HDFC Token]--- HDFC Bank
      |
      |---[Redirect]---> SBI Bank Portal
               Amit logs in & consents
      |<---[SBI Token]--- SBI Bank
      |
Fintech App stores 3 tokens → Calls ICICI, HDFC, SBI APIs → Aggregates Data → Provides Recommendations

💡 Key Points:

• Separate tokens per bank are mandatory for security and scope control.

• Fintech app cannot share one token across multiple banks.

• This is why multi-bank aggregation requires sequential or parallel authentication with each bank.

1. Sequential Authentication (Most Common Approach)

Flow:

1. Amit selects ICICI, HDFC, SBI in the fintech app.

2. Step 1: Fintech app redirects Amit to ICICI Bank portal → Amit logs in → ICICI issues token.

3. Step 2: Fintech app redirects Amit to HDFC Bank portal → Amit logs in → HDFC issues token.

4. Step 3: Fintech app redirects Amit to SBI Bank portal → Amit logs in → SBI issues token.

Why sequential?

• Security & regulatory compliance: Each bank needs explicit consent.

• Browser/session limitations: Redirecting to multiple bank login portals at once would be confusing and may fail.

• User experience: Sequential login ensures Amit knows which bank he is authenticating for.

2. Parallel Authentication (Optional / Advanced)

• Some fintechs try parallel authentication using embedded login flows or OpenID Connect pop-ups, so Amit sees multiple login screens without leaving the app.

• Challenges:

  • Banks may not allow embedded login due to security rules.

  • Increases complexity in managing multiple simultaneous tokens.

  • Less common in India as RBI / bank guidelines favor explicit sequential consent.

✅ Summary (Text-Only)

Sequential Flow (Most Common):
Customer selects banks → Fintech redirects to ICICI → Login & token
                                 ↓
                        Redirect to HDFC → Login & token
                                 ↓
                        Redirect to SBI → Login & token
                                 ↓
Fintech app has 3 tokens → Calls APIs → Aggregates data → Recommendations

Key Takeaway:

• One by one login/consent is standard.

• Parallel login is technically possible but rarely used due to regulatory, UX, and security concerns.

Scenario: Amit wants a personal loan via fintech app

Banks: ICICI, HDFC, SBIFintech App: Loan aggregator

Step 1: Customer Selects Banks

• Amit opens the fintech app.

• Selects: ICICI, HDFC, SBI.

• Fintech app prepares a list of banks to authenticate sequentially.

Step 2: Sequential Bank Login & Token Issuance

1. ICICI Bank

   • Fintech redirects Amit to ICICI Bank portal.

   • Amit logs in with ICICI credentials.

   • ICICI Bank validates identity and consent.

   • ICICI Bank issues ICICI token to fintech app.

2. HDFC Bank

   • Fintech redirects Amit to HDFC Bank portal.

   • Amit logs in with HDFC credentials.

   • HDFC Bank validates identity and consent.

   • HDFC Bank issues HDFC token to fintech app.

3. SBI Bank

   • Fintech redirects Amit to SBI Bank portal.

   • Amit logs in with SBI credentials.

   • SBI Bank validates identity and consent.

   • SBI Bank issues SBI token to fintech app.

✅ After this step, fintech app holds 3 separate tokens, one per bank.

Step 3: API Calls Using Tokens

• ICICI Token → ICICI APIs

  • GET /accounts → retrieve account balances

  • GET /transactions → last 6–12 months

  • GET /loans → existing loans

• HDFC Token → HDFC APIs

  • Same endpoints for account, transaction, and loan data

• SBI Token → SBI APIs

  • Same endpoints for account, transaction, and loan data

Step 4: Data Aggregation

• Fintech app collects JSON responses from all three banks.

• Normalizes data into unified format:

{
  "ICICI": {...},
  "HDFC": {...},
  "SBI": {...}
}

• Aggregated data is ready for analysis.

Step 5: AI/ML Analysis for Loan Recommendation

• Fintech app calculates:

  • Loan eligibility across all banks

  • Optimal interest rates & terms

  • Personalized recommendation

Step 6: Present Recommendation & Apply

• Amit sees best options from ICICI, HDFC, SBI.

• Selects preferred bank and proceeds to apply.

• Fintech app initiates loan application using the selected bank’s API (POST /loan/application) with the corresponding token.

• Bank validates and disburses loan.

Step 7: Real-Time Updates

• Fintech app continues to receive updates via bank APIs using the respective tokens:

  • Transaction alerts

  • Loan status updates

  • Account changes

Text-Only Flow Summary

Customer (Amit) selects ICICI, HDFC, SBI → Fintech App
      |
      |---[Redirect]--> ICICI Portal → Login & Consent → ICICI Token
      |
      |---[Redirect]--> HDFC Portal → Login & Consent → HDFC Token
      |
      |---[Redirect]--> SBI Portal → Login & Consent → SBI Token
      |
Fintech App stores 3 tokens
      |
      |---[API Calls using ICICI Token]--> ICICI APIs → Account & Transactions
      |---[API Calls using HDFC Token]--> HDFC APIs → Account & Transactions
      |---[API Calls using SBI Token]--> SBI APIs → Account & Transactions
      |
Fintech App aggregates data → Runs ML/AI → Recommends Loans
      |
Customer selects bank → Fintech App → POST /loan/application → Bank Processes Loan
      |
Real-time updates via APIs

💡 Key Points:

• Each bank requires separate login and token.

• Sequential login ensures security, consent, and regulatory compliance.

• Fintech acts as aggregator & orchestrator, never stores bank credentials.

what if token expire since token issuence is sequential

====

1. The Token Expiry Issue

• OAuth 2.0 / OpenID Connect tokens issued by banks are usually short-lived (commonly 5–15 minutes) for security reasons.

• In a sequential multi-bank login scenario:

  1. Amit logs into ICICI → ICICI issues token (valid, say, 5–15 min).

  2. Amit logs into HDFC → HDFC issues token.

  3. Amit logs into SBI → SBI issues token.

• By the time Amit reaches SBI, the ICICI token may have expired.

• If fintech tries to use the expired token for aggregation, the API call will fail, causing incomplete data.

2. Solutions to Handle Token Expiry

a) Longer Token Validity

• Banks can issue longer-lived tokens (e.g., 30 min, 1 hour).

• Advantage: Gives fintech app enough time to complete sequential logins and aggregation.

• Challenge: Security risk—longer tokens are more exposed if intercepted.

b) Refresh Tokens

• Banks can issue a refresh token along with the access token.

• Flow:

  1. Access token expires → fintech uses refresh token to get a new access token without the user logging in again.

  2. Fintech continues API calls with renewed token.

• Best practice in most open banking systems.

c) Parallel Authentication (if supported)

• If fintech can open multi-bank login pop-ups or embedded flows simultaneously, tokens are issued almost at the same time.

• Minimizes token expiry issues.

• Regulatory & UX constraints may limit this in India.

d) Token Management & Orchestration

• Fintech app should:

  • Track expiry time of each token

  • Refresh or request new tokens if needed

  • Retry failed API calls after refreshing the token

3. Practical Recommendation for India (2025)

• Minimum access token validity: 30 minutes is reasonable for multi-bank aggregation.

• Use refresh tokens wherever supported to extend session without user intervention.

• Plan sequential login efficiently: Display progress to user, so they complete login for all banks without delay.

• Fallback: If token expires, fintech can prompt Amit to re-authenticate for that bank.

Text-Only Flow with Refresh Tokens

Step 1: Amit logs into ICICI → ICICI issues Access Token + Refresh Token (valid 30 min)
Step 2: Amit logs into HDFC → HDFC issues Access Token + Refresh Token
Step 3: Amit logs into SBI → SBI issues Access Token + Refresh Token
Step 4: Fintech app calls APIs:
        ICICI API → Access Token valid → success
        HDFC API → Access Token valid → success
        SBI API → Access Token valid → success
Step 5: If ICICI token expired during API calls → use Refresh Token → get new Access Token → retry API

✅ Key Takeaways

1. Short-lived tokens (5–10 min) are too risky for sequential multi-bank aggregation.

2. Banks must issue at least 30-min tokens or support refresh tokens.

3. Fintech apps must have token management to handle expiry and refresh seamlessly.

is OpenBanking operational in India-- please see my upcoming blog

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