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Open APIs and Standardization – why bother
The regulators are hoping that opening up bank’s data to FinTech start-up companies will boost competition in the sector – enabling these newcomers to create innovative new services, based on top of the bank’s data. For example, with access to this banking technology, developers could build innovative user-friendly apps that allow consumers to manage their spending and directly link to their bank accounts. It is thought that the initiative will also lead to banking comparison sites, such as those that are popular in the insurance industry.
This will undoubtedly increase competition for traditional banks. FinTech enterprises have already shown a distinct ability to innovate faster than established players, due to their flexible technology frameworks. What they’ve lacked is the vast customer data that banks have access to. Granting FinTechs with access to this data will boost their innovation prospects even further.
The technology is a gateway to opportunities
While the regulator’s initiative to standardise APIs has been largely reported as a competition boost in the banking industry, banks should to an extent welcome this move towards a ‘sharing’ culture. APIs are the key to collaboration between FinTech player, which managed correctly can be a great boost to established players. With their huge IT legacy systems, banks have often struggled to innovate at the speed with which customers demand. By embracing an open platform, banks can simplify the process of adding innovative technology services by piecing together building blocks of flexible technology – outsourced from FinTech players, or even other banks who specialise in a specific service.
This could provide banks with the flexibility they need to provide the kind of product customisation and experience that customers expect.
What needs to be done before we go full speed ahead
The proliferation of FinTech companies has accelerated in recent years, setting new expectations with new business models that sometimes compete directly with banks. Traditional players are evolving their core banking capabilities into a componentized framework that will allow them to embrace evolving business expectations and customer demands. Exploring open banking APIs, for example in a joined project of BIAN and Carnegie Mellon University, and the search for innovation partnerships becomes easier when you are no longer tied to the past era’s monolithic application approaches.
In the meantime, banks have some work to do to ensure that they are in a strong position to embrace this opportunity. Direct payments are being introduced despite the fact that many banks currently have decrepit IT architecture that may not be able to handle more product offerings and innovation. This back-end complexity needs to be straightened out before banks can truly benefit from collaboration on their top-level technology.
To achieve this, banks need to collaborate with competitor banks, technology experts and FinTech newcomers, to define industry-wide standards for banking IT architecture – cutting through the
complexity by categorising core IT into clear business functions. By first and foremost aligning to a framework that is standardised across the whole international banking industry, banks will be able to ensure that their IT systems and thus their APIs are in sync across the landscape.
The Banking Industry Architecture Network (BIAN) is working very hard to make such a common framework available to the Financial Services Industry.
BIAN’s collaborative ecosystem is formed of leading banks, technology providers, consultants and academics from all over the globe. Together we’re dedicated to lowering the cost of banking and boosting speed to innovation in the industry, by enabling open banking through open interoperability.
The model is based on a service-oriented architecture that defines the standard business capabilities that make up a bank- such as payments, loan offerings or trading facilities. These are defined by Service Domains. By identifying the information dependencies (known as Service Operations) between these standard business capabilities BIAN members are building a simplified, yet comprehensive solution to enterprise architecture
This allows banks to focus more on the strategic side of business and less on the tactical because each endeavour builds upon prior work and moves them further along their strategic roadmaps. By aligning to the BIAN framework they are assured that it will be constantly adopted to new market- and technology demands.