Technology has evolved tremendously within many industries including the financial industry over the past decade. With the change in consumer behaviour and the emergence of regulatory compliance, the landscape of the financial industry is sprouting. As government and various entities constantly aim to develop secure financial platforms and compliance procedures, firms are driving towards open banking platforms.

According to 2018 Global Payments Insight Survey, 87% of banks globally are planning to move forward with open APIs. The explosion of strategies in open banking has transformed payments services globally. Over 47% of banks have reported the development of API within one year.

What is an API?

APIs (Application Programming Interface) are a set of protocols for computer programs to communicate and exchange information. They were introduced to connect software’s or applications within an organisation, but with the evolution of the internet, use of public APIs or Open APIs are on the rise. Open APIs allows third parties to access an organisation’s data and services in a controlled environment. An open API can be used both by developers within the organisation and by any third-party developers or organisations who register to access the interface. This allows not only a room for innovation to the third parties but also an opportunity for them to add new functionality to their core offerings.

Global Prevalence of Open API in Banking and Financial Services

Open APIs is an emerging trend in the financial industry particularly around the digital wallets and peer-to-peer payments. Countries across the world are adapting to the open banking business methods. According to Banking APIS: State of the Market Report, African banking economy has already accepted open API approach. Open Banking has also been gaining significant prominence in the European banking industry – driven by changing regulatory mandates. Payment Services Directive (PSD2), is one such regulatory mandate that aims to standardise and improve payment efficiency in the European Union.

Banco Bilbao Vizcaya Argentaria (BBVA), a Spanish Banking group, was one of the first banks to develop public APIs for their businesses. According to Derek White, Global head of customer solutions at BBVA, open banking, a customer-led business opportunity, is transforming the financial industry into reality.

PSD2, which came into effect on January 2018, will enhance consumer data protection and support provisions that allow third parties to access banks data via open APIs. This will intensify competition among banks and third parties in European nations. Now the banks are no longer competing against other banks, but against everyone who is offering financial services.

PSD2, thus, will fundamentally change the payments value chain and accelerate the digital transformation of the financial industries initiated by Fintech companies. It is therefore clear, that banks need to re-strategise and exploit the opportunity to maintain their position in the financial services landscapes.

Market Opportunities

Perhaps the greatest risk of Open APIs is that customer can execute transactions without going to banks making it difficult for banks to maintain a relationship with customers or to keep track of their financial activity. Banks will have to quickly identify and capitalise on the opportunity by working together with the Fintech firms to build customer’s trust and offer innovative products and services. Meanwhile, third-parties are penetrating the market by providing personalised services using bank’s data via open APIs thereby driving better experience and engagement.

In the midst of this, customers are enjoying being at the forefront to be benefitted by the adoption of open APIs. Customers can now interact with their banks in real-time and have access to more information & services through their existing bank account. This has driven better engagements on the banking platforms and also enabled firms to meet customers’ demands.

Thus, it is clear that banks should keep a close eye on the technology advancement to be ahead in the market and focus on driving customer engagement, personalised products/services, and secure regulatory processes.

InfrasoftTech, a leading FinTech digital solutions provider serves over 450 financial institutions across the globe, offering a gamut of seamless banking products and software solutions to meet end customer requirements and gain competitive edge.

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