What is the Open Credit Enablement Network? (OCEN)

In India, most MSME owners find themselves facing struggles on a regular basis when trying to gain access to credit solutions that are affordable, in order to expand their business operations and continue long-term. Similarly, lenders in India also face struggles when trying to process business loan requests for small businesses. Well, there is good news for these two parties as the face of the lending industry is soon going to change.

The Open Credit Enablement Network, or OCEN for short, is a set of open standards that allows for the facilitation of various aspects of a lending value chain. It is a common language that brings together various stakeholders under one roof through the use of APIs and integrations, thus creating collaboration and partnerships between digital platforms and lenders.

In simpler terms, OCEN can be understood as a common software architecture that allows lenders and service providers to craft customized credit solutions and create a streamlined marketplace with a wide range of lending products & services.

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An Upgrade to the Existing Lending System

OCEN is a common language, an infrastructure of sorts. It contains an API for each level of the lending value chain. Thanks to this, Digital Platforms can seamlessly integrate with these APIs, allowing them to further integrate with multiple lenders and creating a digitalized lending life cycle platform. Until now, such digital platforms faced high barriers to entry for offering such financial services. Similarly, lenders can also provide their financial infrastructure to multiple platforms to source new borrowers.

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The image above perfectly encapsulates how the entire framework of OCEN functions. Let’s take an example from it: Suppose HDFC Bank (lender bank) provides a license to PayTM (digital platform) to provide certain credit services. As PayTM has a vast customer base, HDFC Bank can build personalized credit solutions using data relating to consumer behaviour from PayTM.

Similarly, PayTM can also create a highly customized credit solution for all MSME owners on its platform. This becomes a win-win situation for both the lender and the platform, as both are able to gain business traction and even provide highly customer-oriented solutions as well.?

To understand better, here are the different stakeholders in the OCEN ecosystem:

• Technology Service Provider (TSP) – These are any FinTech organizations that work in tandem with lenders and digital platforms to successfully onboard them onto the OCEN protocol and leverage it to draft out customized credit programs. Embedded Finance providers come under the TSP segment.
• Loan Service Provider (LSP) – These are any digital platforms that are customer-oriented and source borrowers. It can be a web app or a mobile app (iOS/Android), that already has a core service and a significant customer base. Their product offerings originate and enable credit solutions on their own platform.
• Borrowers – These are the customers (MSME/Individual business owners) who will leverage the credit options available within an LSP’s platform through a secured digital process.
• Lenders – These are by definition those who provide capital and access to core banking services, such as banks, NBFCs, and Small Financing Companies in order to allow TSPs to build their company on.

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OCEN & Embedded Finance

OCEN, being a protocol, is incumbent upon the various lenders and platforms to adopt this technology in the real world. This gap between the OCEN and bringing about financial inclusion is fulfilled by Embedded Finance. However, you may be asking at this point, “What exactly is Embedded Finance?”.

Embedded Finance (EmFi) is a concept that allows seamless integration of financial services into the platforms of non-financial entities through the use of APIs. Thus, these customer-facing digital platforms “embed” financial services into themselves, thus the fitting name.

One such usecase of Embedded Finance is the ‘Buy Now, Pay Later’ (BNPL) model. BNPL is a concept within EmFi that redirects customers to third-party FinTech providers. As the name suggests, it is a service that allows customers to buy the product/service they require immediately, but only pay for it after a stipulated time period, usually at no interest. Leveraging the BNPL concept has resulted in increased sales, higher purchase frequencies, and higher cart conversions for businesses.

By combining their technical expertise and financial know-how, EmFi providers digitize the lending lifecycle, thus empowering platforms to embed financial services within themselves and unleash the true potential that OCEN aims to bring.

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Potential Impact of OCEN & Embedded Finance

Embedded Finance, together with OCEN aims to democratize credit data and the ability of lenders to offer credit services. This will encourage more players to enter the fray and play crucial roles in credit delivery.

These revolutionary digital platforms can now distribute credit to their customers by leveraging their positions, and this technology can be adjusted meaningfully in the future, adding effectiveness and inclusiveness to the existing lending value chain.

OCEN will also facilitate easier and more effective partnerships between lenders and borrowers, resulting in specialized origination, where the digital platforms essentially have a deep understanding of their customers. When they reach this stage, they can provide tailored credit solutions with preferential terms by collaborating with the lenders that work for all the parties involved.

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The Next Big Disruption in Lending?

Once at full operational capacity, the OCEN framework is expected to introduce around 1 billion customers into India’s formal credit network. If the history of integrations across “Buy Now, Pay Later” & FinTech partnerships in the past is anything to go by, it basically demonstrates the potential of such technology if leveraged in the right way.

As the lending ecosystem continues to grow rapidly in India, key stakeholders believe that such a collaborative technology will play a major role in democratizing credit for the next generation of borrowers: both individuals and businesses alike.

Just like UPI, the OCEN framework is mainly focused on creating a scalable API infrastructure for the world to use. Later, it is up to the rest of the players to leverage this technology and orchestrate the right user experiences and solutions. And similar to how UPI revolutionized the payments domain, there is no doubt that OCEN too will pave the way for the future of the lending ecosystem in India.

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Article written by:?Sean Pinto?@ Incubate Hub

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IncubateHub?is Asia's largest open innovation & corporate venturing platform to drive Digital Transformation & Sustainable solutions working with Startups, Students & Professionals. We also help Startups engage with our 52+ clients including Mondelez, Faurecia, P&G, Accenture, Tata, DCB Bank, Fidelity, ITC Infotech, IBM, NASSCOM, Analog Device, Nasscom Foundation & Quest Global.