APIs in Banking: Open Banking

. 3 min read

What is open banking?

Open banking is a term that provides a secure way for service providers to access your financial information and build applications around financial institutions.

  • It allows the owner of the network to give universal access to developers/third parties to build and offer next generation products, services and convenience.
  • In the European Banking Industry, due to PSD2 guidelines, API banking is gaining traction.

Benefits of open banking

The percentage represents FinTech and banking executives who have given a rating of 6 or 7 on a scale of 1-7 for each of the benefits.

Strategic opportunities

  • The ubiquitous: Integrate our products into others value chains (i.e e-commerce, corporate ERP systems).
  • The integrators: Aggregate third party data into our own value chain to provide customers with holistic financial management.
  • The facilitators: Orchestrate a platform that combines supply and demand by linking multiple providers with bank’s customers.
  • The plug and players: Add new products and services to our offerings (i.e expense tracker in MB app).

Case studies of open API banking

Case study 1: Account Information API (AISP)

To deliver a secure, consent-driven portal that aggregates all transactional data across the customer's account information using open banking API.

Case study 2: Payment API (PISP)

To overcome the inefficiencies in transactional costs of intermediaries for online payment industry.

Four Approaches for unlocking business value of APIs

Build APIs for client connectivity

  • Enabling straight-through process
  • Moving to real-time information flow
  • Modernizing corporate to bank data exchange

Build APIs for banking innovation

  • API developer portal
  • Conducting hackathons with Fintech partnership programs
  • Promoting APIs to encourage adaptation

Build APIs for banking as a platform

  • Modular application stack
  • State of the art technology capabilities

Build APIs for client integration

  • REST APIs for mainframe applications
  • Micro services architecture to abstract legacy systems
  • Industry standards for web services and APIs

Global context

Globally banks have started partnering with Fintech to build innovative products and services, with more than 50+ such initiatives having raised more than $2 billion.

  • DBS Bank launched the world’s largest API platform, which consists of 155 APIs in over 20 categories.
  • PSD2 is a regulatory mandate to standardize and make interoperable card, internet and mobile payments. By Jan 2018, all FI in the 28 EU member needed to be PSD2 compliant.
  • CMA9: Open banking as a directive covering only the top 9 banks in the UK.
  • According to Forrester Consulting Total Economic Impact (TEI) study, there will be 50% to 90%+ improvement in API management productivity, freeing up time to focus on innovation.

Summary

Open APIs will enable banking organizations to gather actionable data from various internal and external sources, including buying habits, financial goals, rick tolerance and even social interactions.

  • Insight derived from this data will enable more proactive (and accurate) multi-channel marketing, moving from reactive sales pitches to proactive solutions and advisory services.
  • The ability to apply machine learning and artificial intelligence, which will respond to customer desires of “Know me”, “Look out for me” and “Reward me”. This is expected to greatly improve the customer experience which currently lacks personalization and real-time engagement.

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