By : Andy Brown
December 04, 2017 12:00 AM
Financial institutions (FIs) should already be working under the assumption that open banking is a reality, even though it remains very much a work in progress in many markets.
The EU’s revised Payment Services Directive (PSD2) – one of the key drivers of the transition to open banking – will come into full effect on January 13th 2018. Banks that want to get out in front of one of the biggest transformations the industry has experienced in recent times should be taking action now.
As NCR explores in the whitepaper Open Banking: The Art of the Possible, this journey towards new business models, collaboration methods and consumer experiences will demand a new way of thinking about banking.
Crucial to this shift in mindset is understanding and utilizing application programming interfaces (APIs) – technology that facilitates data-sharing between different organizations by allowing one piece of software to engage with another.
APIs have a critical role to play in the move towards open banking. The easier sharing of data between different organizations creates new opportunities for collaboration and the delivery of third-party services to customers.
Under PSD2, APIs will serve functions such as allowing payment initiation and account information service providers to access the customer account and transaction data held by banks.
It’s not only in Europe that these technologies are becoming more common, with countries such as Australia and Singapore also turning to APIs to support the ongoing evolution of their respective marketplaces.
From the consumer perspective, the growth of APIs is indicative of a new era of openness and informed decision-making in financial services. One capability of these technologies is to make information such as product and pricing data available for comparison on social media sites or digital platforms, which contributes to greater transparency and healthier competition across the industry.
APIs are already a reality in retail banking, and we can expect them to become increasingly common in the near future. Early adopters include HSBC, which is testing out a platform that allows customers to see all of their accounts, regardless of the provider, on a single screen. Other FIs that have been quick to get onboard with APIs include Spanish bank BBVA and Germany’s Fidor Bank.
Making APIs a central part of the modern financial services industry is undoubtedly a big change that might seem daunting to some firms, particularly established FIs that are still reliant on legacy infrastructure. But what is becoming increasingly clear is that, to position your business for future success, it’s vital to view APIs as an opportunity, not a threat.
The expansion of the fintech community, combined with growing consumer and business demands for the seamless integration of payments and bank information into service offerings, means it has never been more important for FIs to be open to collaboration. The proliferation of APIs can enable this collaboration, helping various businesses share data, execute transactions and gain mutual benefits from one another.
Consumers and businesses are increasingly expecting banks to evolve and align themselves with the broader changes taking place in the industry, and embracing APIs is a perfect way to do that.
Furthermore, there are tangible business benefits to be gained from using these technologies, such as the ability to deliver new, API-driven services and consequently generate fresh revenue.
For example, it’s possible that banks could use APIs to create integrated online banking and financial advice portals for consumers and businesses, encompassing everything from basic account details and payment options to marketing functions and customer engagement channels.
Another possibility is monetized access to customer information, whereby FIs use advanced APIs to offer a level of third-party data access beyond that required by law.
From a security perspective, APIs could facilitate the sharing of transaction and account data with third-party fraud detectors. Equipped with a wide range of information, these services would be in a stronger position to spot anomalous behavioral and spending patterns.
These are just a few example of how APIs can be deployed in the age of open banking, and there’s little doubt that the potential of these technologies will grow and evolve over the years to come.
For FIs, the focus should be on the future, specifically on how your business can make the most of the opportunities arising in this new era for the industry. Those organizations that take the most open-minded, proactive approach will be the first to reap the benefits for their business and its customers.