Something that barely raised any interest only two years ago was the focus of many of the discussions at this year’s SIBOS. The use of APIs in banking has rapidly gone from a peripheral issue to central to the thinking for many banks. As banks are beginning to gear up for API-related business, the question for many bankers is how to generate value from API investments.
There’s no doubt that the entire banking industry is taking the move towards open API banking seriously. An audience poll released during SIBOS found that 43% already had an API strategy and a further 42% were thinking about developing one. Leaving aside the legislative environment – such as the rapidly approaching PSD2 regulations in the EU – the real reason that banks have to adopt APIs is simple: it’s what your customers want.
Some industry commentators suggest that there is a trend toward customers being increasingly happy to share their financial information. Whether that is true or not, it is undeniable that customers are becoming more demanding and want products and services more suited to their requirements and to what they want to accomplish. This requires a means to innovate and become more and more customer-centric.
Open API banking has the potential to deliver this evolution in banking. The early fear that Fintech would strip all the bank’s data and customers may have passed but SIBOS showed that banks are still unsure how best to exploit open APIs. The same poll found that more than half the audience thought the biggest challenge related to open APIs is value generation. An API is, after all, only a delivery mechanism. What matters the most is the bank’s data, IP and ultimately the algorithms. Value comes through innovative features and services as well as effectively monetizing the bank’s digital assets.
The one thing that many people at SIBOS agreed upon was that you must take a holistic approach. At a technology level you shouldn’t create discrete API strategies. You should see it as part of your overall digital plan. At a business level it is essential to enable closer connection and collaboration within the organization – and outside as well. That means customers and Fintech – one speaker suggested the bank’s relationship with Fintech should be ‘friends with benefits’.
The payments industry has always been at the forefront of the changes around open APIs. Of the 500 plus new APIs in Financial Services between 2015 and 2017, over 160 were designed for payments. One example of the importance being placed on APIs in payments is the SWIFT gpi Challenge where SWIFT has challenged the industry to use APIs to drive collaborative innovation. Once again there is an emphasis on banks and Fintech working together to develop overlay services to sit on top of SWIFT gpi (global payments innovation). Banks need to securely and compliantly expose payments APIs and work out how to leverage this for new types of product and service delivery.
OpenText™ Analytics has been developing APIs, with yet more to come. Artificial Intelligence can be applied to the payments industry which you can read more about here. This is consistent with what was discussed at SIBOS. Our experience suggests banks looking to develop and implement their API strategies should focus on five key areas:
Establish an API Center of Excellence
The skills and knowledge needed for fast and effective API development aren’t easy to come by. It is advisable to take time to develop the right capabilities within your organization in areas such as API creation, security, management and maintenance. This will help you to drive API adoption and business innovation. Remember that many of the partners you work with may also struggle with understanding and implementing APIs. Your Center of Excellence can help facilitate collaboration, enhance innovation and accelerate time to revenue.
Create an API developers portal
A key feature of open APIs is that they allow you to grow communities of developers around your APIs. Many of the leading banks have already established open banking developers portals to attract as many good developers as possible. The portals have to be secure and well managed but can extend your reach and ability to develop new and interesting APIs without the time and cost of recruiting the right skill levels. Some banks also use their portal as a way to attract talent from Fintechs.
Utilize cloud-based services
The major technical challenge for many banks is dealing with legacy systems. Open APIs can be incompatible with existing infrastructure. Leveraging cloud-based services allows you to decouple legacy systems from your API strategy. This has two potential advantages. First, you can more quickly move towards an ‘API first’ architecture. Secondly, it is not only you that has legacy systems to contend with. Using cloud-based services will also aid collaboration and implementation with partners and customers.
Take a holistic approach to API integration
For many Financial Services companies, the secret to value generation will lie in how quickly they can identify customer needs, develop or amend an API and implement the new service. This requires the ability to integrate APIs across a wide range of banking systems including payments, accounting systems and treasury management. One major bank has already developed APIs to enable integration from the customer’s ERP system into its own. This has allowed customers to do all their banking activities directly from their own ERP and has led to rapid acquisition of new customers for the bank.
Draw on API experts
It takes time to build a Center of Excellence and, even when you have, the range of skills and experience required to continually innovate and improve can be difficult to access just when you need them. Working with a trusted partner can help you ensure you always have the correct product, technical and compliance expertise to meet your open API strategies. The more guidance and support that you can receive from open API experts the faster you can develop high quality APIs.
Open API banking is likely to change many parts of the banking and payments industries over the next few years. The winners will undoubtedly be the organizations that embrace the new opportunities and put in place a solid API strategy designed to drive innovation and value. It’s unlikely – if not impossible – for anyone to achieve this entirely on their own. We are entering a new era of collaboration and cooperation. Taking the right steps now can see you utilize open APIs for improve products and services as well as new business models.
If you would like to know more about how your organization can best build its open API banking strategy, please fill in the contact form on this page and we’ll be delighted to start the conversation.