Leveraging data, hyper-connectivity, digital ecosystems and related topics dominated the agenda and discussions at Sibos 2019. Underlying that is the move towards the use of open application programming interfaces (APIs) as a means to put customers in charge of their own data and a way to encourage new price comparison services and aggregated processing options in the marketplace. How to manage the IT architecture, whether via an API management tool or a microservices approach, was also debated. APIs aren’t new – they’ve traditionally been used for connectivity purposes by organisations such as Swift or to migrate data from outdated legacy servers. However, the new openness around APIs is novel and could dramatically change the industry.
The Club asked Sibos delegates a simple question: How and when will open APIs truly disrupt banking: which region will lead?
Tim Tor, head of Bankline Direct product senior manager, CPB Digital, NatWest
The CMA9 big banks in the UK went live with the open API standard in 2018 in accordance with the open banking regulatory drive. If you look at the Financial Conduct Authority (FCA) website now there are 168 successfully registered entities with the Competition and Markets Authority (CMA) with some payment service providers (PSPs), account aggregators and others joining the banks. It shows innovation is happening and I’m a strong beliver in this open banking initiative. You can offer premium APIs too (paid for) that provide extra service, alongside the open access offerings. NatWest, for instance, has launched a service that will let consumers pay online merchants directly from their bank accounts, without the need to enter credit card details. The Tyl offering also provides simple pricing, settlement and acquiring on-boarding assistance to small firms, allied to smart data-led insights to help them make better business decisions.
I expect the wider second EU Payment Services Directive (PSD2) to provide more regional impetus to the trend of open API usage. Regionally, I’d say Asia is leading tech-wise and some great innovation is happening there, but the regulatory piece is very well covered here in the UK.
Sumit Aggarwal, executive vice-president and head of transaction banking, Emirates NBD
Modern consumers are used to fast, contextual data when they access social media or shop online and want the same level of service from their banks. They want their consumer experience to be replicated in their business experience. Open APIs can deliver this. They are already used by the likes of Uber – who access Google Maps, payment functions and other APIs – to deliver a service to you. Ditto with weather apps, rail timetables or restaurant booking agents. Open APIs already power our consumer lives. Soon they will power our financial lives too, driving price comparison, competition, new aggregated processing options and so on.
Luke Ryder, director of external engagement for open banking, Barclays
The past two years saw the UK’s financial digital revolution take a big step forward with the launch of open banking – a key example of the power of open APIs. We’re already seeing emergent use cases, including the ability to see all your current accounts in one place. And in the coming years we’ll start to see even more innovations emerging, providing customers with more control over their finances, and better value and quality services and propositions.
But (and it’s a big but), this will only happen if, alongside the technical innovations, all those participating in the open banking ecosystem ensure that they take consumers with them on the journey. The region that does this best is the one that will reap the benefits of open APIs. The UK has the lead, for now in my opinion, but things can change quickly, so we must ensure we don’t lose focus on this important principle.
Sharing data is – although potentially very beneficial – also a big step for many. So we as an industry need to ensure we build consumers’ trust in this new approach to their data, and that they feel confident and in control of picking which opportunities they want to engage with. It’s all well and good unlocking the vault to this rich source of transformative information. But people need to know that they, and they alone, hold the key. Then, and then alone, will open banking really take flight.
Ryan Cuthbertson, head, product management, securities services, Standard Chartered
As the importance of a differentiated customer experience (CX) and instant fulfilment grows and a need for this at scale escalates, open APIs will be instrumental in shaping the financial services industry of the future.
This will be dependent on new technologies, but also on the appropriate use of partnerships – such as that between Standard Chartered and Ant Financial – or the development of API standards through collaborations like the ASEAN Financial Innovation Network (AFIN) in Asia. Banks that harness these technologies to connect ecosystems, support clients’ consumer strategies and use their expertise will lead the way in driving social and environmental transformation.
Juan Martinez, global head of APIs, connectivity and identity, Swift
API technology is proving sufficiently robust for increased use in financial services. We have witnessed the transformation of whole industries with API technology, and it is creating new opportunities that will deliver services more efficiently and thereby satisfy evolving customer expectations. Financial institutions, payment service providers and fintechs are using APIs to expose business data, functionality and services to their customers in exciting and more effective ways.
We are investing massively in this technology to support an open architecture, making our services available through APIs, enhancing flexibility and extending connectivity. APIs should not solely expose data, they should also make data easy to consume and clearly present a value proposition.
In order to fulfil its potential, harmonisation of API standards is crucial. A successful transition to an API-based financial system is only possible if standards bodies converge towards a shared methodology for standardisation. The industry needs a single API standard that works across providers. Swift is simultaneously delivering an industry tooling platform for the development, maintenance, publication and testing of common API specifications. Building on ISO 20022 to ensure end-to-end consistency in business processes, we aim to deliver an API platform for the future of finance and the transition to an API economy.
Eli Rosner, chief product and technology officer, Finastra
Finastra conducted research with 601 financial institutions (FIs) across the UK, US, Singapore, France and Germany earlier this year. It showed that the collaborative mindset in Singapore is far more advanced than in economies such as the UK and US, with managers twice as likely to be looking into fintech collaboration in the next year.
When asked about what is driving the opening of APIs to enable open banking, 65% of FIs in Singapore said their “customers want to use fintech applications developed outside their bank”. Just 45% of banks in the UK agreed, 54% in France and 53% in Germany. In the US, customer demand was less of a driver, the main factor behind opening APIs by US banks is: “the need to compete with other banking services offered by competitors or new market entrants”.
Overall our survey found that while the US and UK recognise some of the benefits of open APIs and we see that they are starting to embrace the journey they are perhaps more inward-looking. However in Singapore, businesses are looking externally to catalyse innovation, whether through collaboration, or via partnerships and M&A. Interestingly, some 57% of bank respondents in Singapore see the best way to encourage innovation is “more government initiatives to support the financial sector”.
Phil Boland, managing director, cash management solutions, Gresham Technologies
The zeitgeist in the institutional payments air at this year’s Sibos is very definitely around open banking and APIs, albeit tinged with a lack of clarity on the applicability for institutions versus retail. 2020 will show whether soft or hard regulation is best for encouraging API-driven institutional banking disruption.
Marcus Hughes, head of strategic business development, Bottomline
The global shift to an API-enabled ecosystem is being driven by a combination of new regulations and the emergence of a growing number of fintechs preferring to exchange data via APIs instead of more conventional methods traditionally used in FS. But the current lack of global standards for APIs risks creating a fragmented landscape which in turn could push back the date when the promised benefits of a global API-connected community are finally achieved.
In the UK, the Competition and Markets Authority (CMA) did at least take the prudent step of requiring nine of the UK’s largest banks (CMA9) to agree on a standard API. This places the UK at an advantage compared to the larger and wholly more ambitious initiative, PSD2, which affects all PSPs within the EU. The European Commission took, with hindsight, a potentially damaging decision to leave API absorption to market forces, in its endeavour not to appear anti-competitive. This initially caused some confusion and subsequently the formation of a number of consortia with a view to developing national or regional APIs [the Berlin Group is one example -Ed]. But the problem faced is the APIs being adopted are not standardised. The only parties to benefit here will be API aggregators that are offering multi-API access via a single platform.
For all other participants in this supposedly exciting new era of open banking, disparate APIs across the EU create a barrier to the roll-out of multi-bank solutions for businesses and consumers by named banks and fintechs. This problem risks repeating itself across other geographies around the world as they too adopt open banking models either on a voluntary or a regulated basis.
So the call to action has to be: We must recognise the need for global open banking API standards. This sounds like a perfect job for Swift; a natural extension of the excellent role they already play as Registration Authority for ISO 20022, which is highly compatible with APIs.
Paul Taylor, chief executive, Thought Machine
The take-up of open APIs has been slow in all regions because too many banks lack the technology to participate fully. Let’s be honest, banks are marooned on legacy systems that require billions of dollars simply to maintain. Innovation is difficult when you rely on Cobol. There is a solution; banks should exit their legacy systems and migrate to platforms built from scratch on cloud native principles. Here innovation can thrive. Cloud native platforms are built around microservices using APIs to communicate. Engaging with third-parties via open APIs is so much easier.
Cloud native platforms also enable continuous deployment. Teams can run upgrades multiple times a day, if they want. It leads to a culture of rapid innovation.
The real proof comes from the Bank of England. Mark Carney used his last Mansion House speech to urge banks to move to the cloud. He claimed cloud tech can cut costs by 30-50%, and accelerate the adoption of new technologies, such as artificial intelligence). You’ll hear the same view from Ravi Menon at the Monetary Authority of Singapore.
Moving to the cloud can unlock innovation at tier one banks. Those that move fastest will be the victors.