Unleashing innovation with open APIs and open banking
“We fundamentally believe that the world is shifting from closed to open – closed architecture to open architecture, everything moving to the cloud; closed networks to open networks; closed systems to open systems.” – Derek White, Chief Design and Digital Officer, Barclays, “Barclays has two blockchain ‘labs’ in London and is planning 45 experiments with the technology”, Business Insider, 2015
In the past couple of years, open banking initiatives have gotten a huge push from regulators and governments alike. This October, the National Payments Corporation of India (NPCI) launched the Unified Payments Interface (UPI) that makes it possible to make payments with just a unique ID, which is very similar to an email ID. UPI enables cashless transactions with any service provider, through an interface of the customer’s choice; irrespective of the bank where the customer has an account. And it is not only the India, forward thinking regulations are getting implemented at a global level. PSD2 will be the European Union’s initiative to promote open banking. This regulation requires banks to open access to customer data to third parties that have an explicit consent from the customer. UK’s HM Treasury set up ‘The Open Banking Working Group (OBWG)’ back in September 2015 to explore how data could be leveraged to make it easier for customers transact, save, borrow, lend and invest their money.
These initiatives are a precursor to the future of banking – imagine a future where banks enable customers to share their data securely with other banks and third party service providers. Customers, in turn, will have control over their own information that enables them to get the most out of these service providers, and manage their accounts from a single user-friendly interface. The benefits gained out of the free sharing of data are immense. For customers, this sharing of data will provide them with opportunities to find relevant products/offerings easily and make informed decisions about their finances. Banks and financial service institutions also stand to gain from open sharing of data –for instance institutions can provide better lending terms to their worthy customers based on their credit and payment history. Banks can implement better fraud management processes with access to data about customer behavior.
Open banking will empower financial institutions to enhance their offerings by collaborating with third party developers and creating applications that are relevant to the customer base. There will be the added benefit of having an engaged developer ecosystem that will unlock innovation in the financial services industry. This developer ecosystem will be the creator of a next generation banking experience, which will be built on top of multiple bank APIs.
Banks are becoming more receptive to the idea of open banking and in the latest Infosys Finacle – Efma Innovation in Retail Banking report, 59% of the banks considered open APIs to have a high impact as a disruptive technology on banking business models. 67% of the banks also considered that open APIs are already/or will have an impact in the next couple of years. It isn’t out of the ordinary now for progressive banks to move ahead with open banking – for example, Citigroup has launched a global API developer hub that allows Citi to connect directly with developers and build innovative customer solutions with a faster time to market. Crédit Agricole has also unveiled its proprietary application marketplace that gives access to developers to an SDK, which they can use to build their own applications; Santander, Deutsche Bank, OCBC and several other innovative banks have followed suit.
The future of banking lies in open innovation and collaboration with the developer ecosystem, and banks are no longer waiting for the regulators to tell them so. In 2017, open banking will be driven by open APIs, applications, app stores, and the extended developer ecosystem, which banks and other service providers will build around their APIs. And it isn’t only the third-party services that will gain from this model; banks will also reap the rewards from this open banking model. As more and more third party service providers integrate banking APIs into their offerings, it will open the doors to more data for the banks themselves. Banks will channel this data back into their own processes to fine tune and personalize customer experiences for their customers.
We believe that the future of digital banking lies in open banking, with a connected ecosystem of financial and non-financial services. The business of banking is set to be transformed by open banking technologies – now whether that happens with initiatives taken by banks and their newer fintech competition, or by regulatory mandate, still remains to be seen.