By 2026, connected banking in India will be seen as a crucial part of the evolving financial system rather than just an innovation or tech upgrade. The reasons for this change are deep-rooted, involving systemic factors, regulations, and growth.

Banks aren’t adopting connected banking because it’s trendy. They are changing because money movement in India has transformed. Transactions now happen in real-time, involve multiple parties, use APIs, and are constantly monitored by regulators. The traditional divisions between banks, fintechs, businesses, and platforms are breaking down. They are being replaced by shared financial workflows that require better coordination.

This blog looks at what is pushing the quick rise of connected banking in India by 2026. It highlights the direction from the RBI, the development of digital public infrastructure, and the large scale on which financial systems now operate.

RBI's Shift From Supervision to System Design

A key factor driving the adoption of connected banking is the changing regulatory stance of the Reserve Bank of India (RBI). In recent years, the RBI has shifted from occasional supervision to ongoing oversight of the entire system.

Instead of focusing solely on institutions, the RBI now regulates money flows how it is collected, stored, given out, and settled across different ecosystems. New guidelines around digital lending, escrow usage, payment instruments, and payment intermediaries show this change.

This new approach requires banks to create accessible, auditable interfaces within their systems. Connected banking makes this possible. APIs, rule engines, and real-time reporting help banks show compliance not just by explaining things afterward but through real-time system behavior.

The RBI’s public documents on digital payments and financial stability clearly outline this direction. By 2026, banks that cannot present compliant, real-time financial workflows will struggle to keep up in modern ecosystems.

Digital Public Infrastructure Has Reached Escape Velocity

India's digital public infrastructure (DPI) is now firmly established. Systems like UPI, Aadhaar, eKYC, NACH, account aggregators, and consent frameworks have grown to national scale, setting new expectations across the financial system.

When identity, payments, and consent operate in real-time on a wide scale, banking systems must adapt. Connected banking acts as the link between DPI rails and enterprise banking operations.

DPI creates a multiplying effect. Each new layer boosts the value of connectivity, interoperability, and standardized access. Banks that try to work alone risk falling out of sync with how value moves across platforms.

NPCI’s materials on payment rails show how interoperability has become essential, not optional. By 2026, connected banking will be how banks stay in step with India’s DPI-driven economy.

Scale Is Forcing Structural Change, Not Incremental Optimization

Indian banking functions on such a large scale that there’s little room for manual processes. With millions of transactions each hour, thousands of partner integrations, and ongoing settlement cycles, traditional batch-based or relationship-driven methods no longer work.

Connected banking handles scale not by adding more staff but by integrating rules into systems. Conditions for escrow, approval logic, reconciliation triggers, and reporting obligations are being built into the systems instead of managed through emails and spreadsheets.

This trend is especially clear in lending, marketplaces, infrastructure financing, and enterprise collections, where funds move based on specific conditions involving multiple parties.

At this level of scale, uncertainty equals risk. Connected banking minimizes uncertainty by clarifying system processes.

Enterprise Expectations Have Quietly Changed

Today’s enterprises expect banks to act like platforms. They want APIs in place of forms, dashboards instead of statements, and real-time visibility rather than end-of-day reports.

This expectation isn’t just coming from fintechs; it's coming from CFOs, compliance heads, and operations leaders who manage increasingly complex financial relationships.

Connected banking allows banks to integrate into enterprise workflows while maintaining control and compliance. Instead of forcing enterprises to adjust to bank processes, banks provide structured interfaces that fit into enterprise systems.

This change is subtle but significant. Banks are no longer mere endpoints for money; they are part of enterprise operating systems.

Escrow and Conditional Money Movement Are Becoming Default

One of the most visible signs of connected banking’s rise is the increased use of escrow-based and rule-based money movement.

As transactions naturally involve multiple parties, both enterprises and regulators now insist that funds only move when conditions are met. Escrow, milestone-based disbursement, and purpose-bound accounts are becoming standard practice.

Connected banking enables these structures to function on a large scale. It allows the creation of escrow accounts programmatically, the enforcement of conditions automatically, and real-time auditing of fund releases.

This isn't just about trust; it's about practicality. Without connected banking, conditional money movement can become slow and manual. With it, complexities are easier to manage.

Compliance Is Becoming Continuous, Not Periodic

Another strong driver for change is the transition from periodic to continuous compliance. Regulators want systems to be compliant by design rather than compliant only after being reviewed.

Connected banking helps achieve this by embedding compliance controls into transaction flows. Limits, approvals, fund segregation, and reporting obligations take place automatically rather than being checked after the fact.

This shift reduces regulatory risk and lowers the operational burden. Compliance teams can focus on oversight instead of constantly putting out fires. Audits become more about verification than investigation.

Global regulatory viewpoints support this move toward continuous supervision.

Fintech Partnerships Require Shared Infrastructure

Bank-fintech partnerships in India are maturing. The initial focus was on speed and distribution. Now, the emphasis is on governance, sustainability, and shared responsibility.

Connected banking offers the infrastructure needed for banks and fintechs to collaborate without losing sight of visibility or control. APIs enable service exposure without bringing in risk. Rule engines set boundaries, and dashboards provide a shared understanding.

By 2026, partnerships lacking the foundation of connected banking will face challenges due to regulatory and operational pressures.

Why 2026 Is the Tipping Point

Multiple trends are converging around 2026. Regulatory expectations are becoming clear. DPI adoption is nearly universal. Enterprise ecosystems are highly interconnected, and transaction volumes continue to soar.

At this stage, connected banking will transition from a competitive advantage to a basic necessity. Banks that hesitate to adopt it won’t just lag behind; they will become structurally incompatible with the evolving money movement.

Those who adopt early will navigate this complexity with ease. Their systems will manage complexity rather than exacerbate it.

Conclusion

The adoption of connected banking in India goes beyond technology trends. It is driven by regulations, the maturity of infrastructure, and the reality of scale. RBI initiatives, digital public infrastructure, and enterprise expectations are all pushing toward a future where connectivity is vital.

By 2026, banks that view connected banking as fundamental to their infrastructure will be better positioned to handle complexity, ensure compliance, and confidently engage in India’s changing financial ecosystems.

For organizations aiming to implement connected banking with governance, transparency, and scalability in mind, a carefully designed Castler solution offers the framework to connect systems, manage money flow, and align with the future of banking.