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OCEN: Lessons from Similar Initiatives Around the World – Opinion News
– By Karun Arya
Small businesses face many challenges in securing financing from institutions. Although MSMEs provide over 30% of GDP growth and over 100 million job opportunities, only 11% of MSMEs have formal access to finance and over 60% of their loan applications still need to be fulfilled. The credit gap for micro, small and medium enterprises (MSMEs) in India it is estimated at 20 to 25 trillion.
To bridge the credit gap, the government of India launched the Open Credit Enablement Network (OCEN), with significant contributions from iSPIRT, an Indian software company industry reflection tank. OCEN is a set of standards that creates a framework for small-cost financing with a brief mandate, allowing distant lenders to conduct business in remote areas and allowing access to data from other sources. It will become a virtual credit market, bringing together distributors, lenders and borrowers in one place.
OCEN is part of the largest global open banking arena, which recorded transactions worth US$57 billion in 2023. The UK, EU, Singapore and South Korea are among the leading global economies exploring open banking/lending efforts . Interestingly, the US, Canada, China and Japan have taken a cautious stance and have not yet explored open banking.
The UK Payment Services Regulations (PSR) provide secure payment services, utilizing over 40 billion payment transactions in 2022. Regulated by the Financial Conduct Authority (FCA), the UK had over 200 payment institutions. payment authorized in 2023, compared to around 150 in 2017. At the beginning of 2023, more than 6 million consumers and companies used Open Banking-enabled products and services.
The European Union’s open banking framework, especially under the Payment Services Directive 2 (PSD2), has given customers more control over their data. Its 2,000+ licensed payment institutions and 1,000+ PSD2 registered account data providers, facilitating more than 20 billion transactions annually, are estimated to attract 64 million users across Europe by the end of 2024. There has also been a marked improvement in safety protocols across Europe. Economic Area (EEA).
Singapore embraced open banking initiatives in 2016 with 12 APIs governed by the Monetary Authority of Singapore (MAS). Singapore has robustly adopted open banking, led by initiatives such as the Singapore Financial Data Exchange (SGFinDex), which consolidates financial data from banks and government agencies, allowing consumers to access their information securely through the SingPass system.
With more than 50 financial institutions and around 350 fintech companies using the APIX platform, a collaborative innovation platform, this initiative has stimulated numerous partnerships between traditional banks and fintech companies. Only DBS has launched the world’s largest developer platform, with 155 APIs across 20 categories.
South Korea currently has two types of infrastructure to support its open banking initiatives: the My Data program and institutional-level open banking services. My Data is similar to India’s Account Aggregation, which gives individuals the right to choose who they share data with.
As of September 2020, more than 50% of South Korea’s adult population uses some form of Open Banking. Two years after launch, 100 million registered accounts used open banking in the country, with 30 million users. Around 100 financial institutions have created more than 50 new products and services. Average daily open banking volume was 1.7 trillion South Korean won in 2023, up from about 1.4 trillion won the previous year.
There are efforts to create global standards for open finance and to encourage cooperation and data exchange across borders. Global initiatives also focus on the continued evolution of regulatory frameworks to reflect significant advances in fintech and digital banking.
In the future, OCEN may collaborate with global open banking initiatives to make financial services more accessible, interconnected and efficient across nations and regions. Through a common technological interface, it will simplify financial management and facilitate access to cross-border financial institutions.
By leveraging interconnected financial systems, small businesses can access much-needed financing, increasing the availability of credit for small businesses in overlooked geographies and promoting inclusion.
In addition to international collaboration, we will need regulatory alignment and innovation, a strong technological infrastructure, systems standardization and customer trust to make this a reality. Strong regional players will eventually dominate global credit markets.
In short, there are many use cases for OCEN-like systems, such as the UK’s PSR, the EU’s PSD2, Singapore’s open banking initiatives, and South Korea’s MyData initiatives. Global economies are adopting them, with an emphasis on data security and privacy and increasing customer trust. While some countries have opted for a market-oriented open banking system, others have formulated regulation-oriented systems. But collectively, they will continue to grow and increase the depth and inclusiveness of credit.
(Karun Arya is the Chief Growth Officer at GetVantage.)
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