As the API economy has gathered momentum across industries and sectors, the financial industry has been a relative laggard. Online retail and big-tech platforms have taken a lead, while banking and other financial organizations have proceeded relatively cautiously, thinking carefully about their strategies for both internal and external deployment and focusing on how best to reap commercial benefits from the API economy. In that respect, regulators have a key role to play - standardisation of open APIs is likely to be a key condition of success. Conversely, a lack of common standards will hinder progress and increase the burden of delivery.
Both banks and non-banks have spent significant sums to comply with Open Banking regulatory requirements (PSD2 in Europe). There is now increased pressure, on banks in particular, to deliver returns. There is also a recognition that if services and propositions are to become attractive to customers, the perimeter of in-scope data and products needs to go beyond that specified by regulation (current accounts, savings, some lending products). As a result, there is growing momentum behind the concept of Open Finance, which would allow products such as mortgages, investments, and pensions to form part of an extended perimeter of data sharing and exchange through dedicated interfaces such as APIs.
An expanded perimeter would allow banks to tap into the more lucrative product areas of core lending and investments, boosting commercial returns. Additionally, non-bank players (fintechs and others) would benefit from a broader pool of data to fuel innovation and create new services — a win-win situation for all parties. On the payments side, the work of the European Retail Payments Board (ERPB) on the SEPA API Access Scheme provides a valuable insight into the challenges and potential solutions that are likely to play a key role in kick-starting commercialisation.
While the concept may appear simple, implementation is anything but. There are germane concerns around both secure, controlled access to data and its exchange with third parties. Market participants and stakeholders (including regulators) are also mindful of not overheating the system with an unmanageable access load, and have imposed restrictions around how, and how much, market participants can access digital interfaces.
For Open Banking/Open Finance to become relevant, commercially successful, and deliver for regulators and customers, participants need to find ways to benefit from the API economy. API monetisation is the first step in the right direction.