Every day there is a new article that discusses the sea change disrupting the banking industry. This change, they say, will fundamentally disrupt the financial services value chain for customers, intermediaries, and incumbents alike. There is no avoiding the signs.
Those who treat Open Banking as an opportunity to re-define and prioritize what they add in the value chain will be thrivers, and will win both in the short- and long-term.
With the rising importance of APIs and banks waking up to the strategic implications, some typical approaches can be observed. The approach an organization selects depends on the organizational history, context, and, more importantly, how they wish to survive and grow. In particular, for large incumbents, where there are different lines of business and entities, they may be acting on more than one approach in parallel across the organization.
Three challenges to overcome
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Culture shift and future-proofing of technology investments
Open Banking and the use of APIs is fundamental. Some banks have chosen to embrace concepts such as R&D and innovation incubation teams, unbundling monolithic IT systems into reusable service components, and hackathons to spark innovation in order to gain that agility. This may address today’s concerns, but how can banks build for tomorrow with uncertainty on the technical standards that will be defined in months and years to come?
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Contributing value to and from the API economy
In this new ecosystem, APIs are a new channel for doing business and need to be given that importance. The monetization of the API economy presents a new source of revenue, but only if a bank’s APIs are adopted and used by other organizations and developers. They should be productized and marketed as a source of competitive advantage, like any other traditional product. There is no value in having the best banking platform if developers don’t want to open the front door.
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Coping with increased, new, and future demand
Requirements for API platforms are numerous and future generations of customers will make new demands on these platforms that are unclear today. They must support security measures such as encryption, strong customer authentication, and auditing to keep financial transactions and information secure. They must be scalable and efficient. When payments are invoked through APIs and are revenue generating, poor availability and reliability are not an option.
The cost/benefit ratio of leveraging a best of breed approach between internal and external systems operated on-premise or in the cloud leads-to an increased complexity in integrating heterogeneous components consistently, rather than point to point. Using a point-to-point approach doesn’t scale with the number of systems needing to cooperate one with another, and also creates ever growing technical debt as additional complexity is layered on top of each other over time.