22 August 2017
Hans Tesselaar

Hans Tesselaar

Hans Tesselaar - BIAN

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Making sense of the government’s banking API initiative

21 July 2015  |  7432 views  |  5

In the last few years the financial landscape has been drastically changing shape, with new technology entrants coming onto the market and offering innovative solutions to financial services. The FinTech wave has even made its way onto the political agenda – Chancellor George Osborne announced a plan to boost competition by encouraging banks to open up their Application Programming Interfaces (APIs) in his pre-election Budget statement.

Launched by Salesforce in 2000 APIs essentially allow the communication between two different pieces of software. The government is hoping that opening up data to FinTech start-up companies will boost competition in the sector – enabling these newcomers to create innovative new services, based on the standardised banking API. 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 planned that the initiative will also lead to banking comparison sites, such as those that are popular in the insurance industry.  

While the government’s initiative to standardise APIs has been largely reported as a competition boost in the banking industry, banks should welcome this move towards a ‘sharing’ culture. APIs are the key to collaboration between FinTech players and banks should embrace this with open arms. This is not a case of FinTechs versus the banks - beyond the benefits to the consumer and new financial technology companies, banks also have a lot to gain through opening up their APIs. With their creaking 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.

However, this does not mean that the underlying legacy issues of archaic and convoluted banking IT architecture can just be ignored. Opening up the top level APIs without addressing the core banking issue underneath is purely masking the real problem. For open APIs to offer a real solution to banks’ technology issues, banks need to make sense of their confused core IT systems – in order to ensure their APIs link to these core business functions. 

By collaborating with competitor banks, technology experts and FinTech newcomers, the banking sector can define industry-wide standards for banking IT architecture – cutting through the complexity by categorising core IT into clear business functions. Aligning to a framework that is standardised across the whole international banking industry would enable banks to ensure that their IT systems and thus their APIs are in sync across the landscape. 

The government’s open API initiative is a step in the right direction to boosting banking innovation, however the government will need to take advice from industry experts and banking players, if it is to ensure that this initiative provides true value to the whole ecosystem. Applying a top-down approach – forcing banks to open their APIs, despite their creaking legacy IT architecture may seem like a ‘quick fix’ to boost banking IT innovation, but for real long-term benefit, it is crucial to address the problem from the bottom up. By categorising and standardising their IT architecture, before considering where their APIs fit within this, banks can embrace a truly open approach to innovation. 

 

 

TagsRetail bankingWholesale banking

Comments: (5)

A Finextra member
A Finextra member | 22 July, 2015, 19:16

While in theory this sounds good, in practice I'm concerned by the potential grey areas that could be opened when things go wrong. The last thing a consumer would want is finger pointing and the "weakest links" I see potentially developing, as well as the greed for customer data give me pause for thought. I expect all this will be ironed out shortly ..

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Alexander Mifsud
Alexander Mifsud - Ixaris Systems Ltd - London | 23 July, 2015, 08:05

I don't buy the bottom up approach because it is simply too hard for most banks and is unlikely to happen any time soon.  Banks are better off doing two things first: use a cloud based approach to new services so they can be nimble and not shackled by the legacy architecture, and create middleware overlays over their legacy systems.  Both these approaches will enable them to publish APIs in a practical and cost-effective way.  Once front end services (whether delivered via APIs or via user interfaces) are established, banks can then take the time (and pace their expenditure) to gut out their legacy systems and replace them with the kind of structured architecture that Hans is advocating.  

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Patricia Hines
Patricia Hines - Celent - Charlotte | 23 July, 2015, 15:04

I agree with Alexander that new middleware approaches can modernize legacy systems, particularly by creating internal APIs to expose data to front-end developers. Most next generation middleware solutions include API creation, management and security and will be able to connect with the UK Open Data API framework, once defined and developed.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 23 July, 2015, 15:42

Is there any regulatory stipulation on the price that can banks can charge for the API access? After all, banks have spent huge money on collecting and maintaining all this data and deserve to be compensated for sharing it with third parties.

I tend to agree with @CharmaineO about liability in the event of a data breach or any number of other things that could wrong with this approach.

On a side note, I've come across APIs from well before 2000 (e.g. SAP's BAPI), so the line crediting SFDC for launching APIs in 2000 must only mean cloud API. Besides, BAPIs could be implemented over mainframe instances of SAP, so banks shouldn't have too many problems doing a similar thing on top of their legacy systems.

Last but not the least, how does this regulation plan to safeguard the consumer's rights? After all, as a bank customer, I'd hate for all my data to be shared via APIs with every new fintech startup that comes around and for me to be told ex post facto that this has happened on account of some regulation. I've come across people who are not comfortable about their bank sharing their retail banking data even with its own corporate banking SBU.

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A Finextra member
A Finextra member | 23 July, 2015, 15:49

Can the govrenment show us the stats that prove there is pent-up consumer demand for this? I'd like to think there is more to this than someone's gut-feeling

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