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The Post API World
The future of banking is being completely altered by the Payment Services Directive 2 (PSD2) which comes into play in January 2018.
PSD2 opens the floodgates to financial services innovation. Instead of making banking more complex, PSD2 is forcing banks to open up their systems of record to third parties, including non-traditional Financial Services (FS) companies like Amazon and Facebook. Banking will finally become transparent to those who matter most – the consumers.
Application Programming Interface (API) technology will play a vital role in turning the Open Banking dream into a reality, as they allow data to be transferred and shared between different organisations. Banks now should be developing and executing a plan which highlights the FinTech partners they would like to work with and how they can manage, monitor and monetize new relationships.
To remain competitive banks need to develop strong and committed partnerships with third parties, these partnerships have led to rising interest in the development of partner ecosystems. Gartner research shows 79% of top performing businesses today are actively participating in a digital ecosystem. This is because a partner ecosystem expands a company’s digital footprint and amplifies its reach similar to how traditional acquisitions and mergers give companies a competitive edge.
These partnerships provide operational intelligence which improves efficiency, whilst also providing insight for business critical actions and potentially, new customer offers. Using technology to help weave partnerships creates the best of breed experience for customers, as all services can be obtained from one platform.
Partner ecosystem a pleasure or a pain?
As banks look to evolve and create partner ecosystems, business processes are going to increase in complexity as more partners join, creating an intricate web of communication, process and policy. This results in a technological jumble, a knot of API connections crossing over each other accessing different databases across a bank. The global banking industry manages trillions of pounds worth of assets, this year alone HSBC is reported to have a total asset net worth of £1.94 trillion, so managing the sheer volume of assets alongside new partner is fraught with complexity.
Additionally, connecting different systems of engagement and systems of record is complex and not the core business of most existing in-house IT teams. According to Time Magazine, every two minutes approximately 104,000 transactions are made in America; these have to be captured and approved by banks. As the number of partnerships increase, so will the number of transactions, due to the ease and accessibility purchase opportunities are presented to the customer, so there will greater strain on the bank’s IT systems and possibly more outages.
A customer can potentially access all their services on one provider's platform, so will these ecosystems increase competition or create monopolies in the banking industry? If one company develops partnerships quicker it could potentially cut out the competition. However, there are many hurdles in creating the perfect ecosystem. Cultivating the best partner ecosystem is vital for success, otherwise poor partnerships built in haste could seriously impact the business. Highlighted below are the key aspects which determine a successful partner ecosystem.
As banking systems are forced to open up and banks are encouraged to offer better customer service, partnerships are being sought. The banking industry could become the template of best-of-breed partnerships.
However, creating an ecosystem without the right technology could very easily become confused and dominated by one partner. To control and manage this new business paradigm it is paramount to focus primarily on the customer. If all ecosystems are created with the customer as the focal point, it will be beneficial for all involved as they mine the gold out of this new revenue stream.
Connecting with the right partner
Selecting the right partner is merely the first step to become a truly relevant Financial Services organisation, to build a successful ecosystems banks need reliable APIs, we recommend following the three ‘Ms’; manage, monitor and monetize, when using APIs below:
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Sireesh Patnaik Chief Product and Technology Officer (CPTO) at Pennant Technologies
02 October
Jelle Van Schaick Head of Marketing at Intergiro
01 October
Ruchi Rathor Founder at Payomatix Technologies
30 September
Dmytro Spilka Director and Founder at Solvid, Coinprompter
27 September
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