Beyond APIs — Why Open Banking really matters
From the archive: written before or outside the Architect Tomorrow newsletter, so it may be out of date.
Whilst it’s hard not to get caught up in the buzz surrounding Open Banking and its ability to open up the Financial Services market to new players (including FinTech — Financial Technology firms); it is important to try and look a couple of steps ahead to where this may lead the industry.
Whilst APIs as a technology aren’t that new — the new wave of standardised Open Banking APIs that are coming offer the ability to take core banking functions (such as retrieving account balances and transactions) and re-imagine the digital banking experience. Many niche apps — designed to solve a small number of customer needs — are being developed based on the ability to interact electronically with existing banking products in a standardised manner.
Examples of this include apps to reward and incentivise savings, or transfer money in a frictionless manner. One specific type of app that is worthy of attention is the “Aggregator” — which can combine your various different banking products from different firms into a “single pane of glass” (one app or customer touch point). These third party apps create an Over The Top (OTT) risk of disintermediation — much like when the Telco industry suffered from messaging Apps such as WhatsApp displacing traditional revenue streams such as SMS. Banking customers (particularly younger customers) may start to see their bank as a utility rather than an organisation that they have a deep value added relationship with.
Of course this goes beyond disruptive FinTech start-ups. Large technology companies are very likely to get involved — if they are comfortable with the regulatory implications of adding financial features to their products. If they are we may see for example balance checking or transaction history features added to social timelines. And naturally the tech companies will benefit from yet another data source to add to their view of users.
The existing more traditional incumbent banks will likely face a dilemma with OpenBanking. They already have mobile apps (which will make use of proprietary APIs developed specifically for their digital banking experience). Do they switch their apps to make use of OpenBanking APIs — so that they are eating their own OpenBanking API dog food? The danger if they do not is how do they effectively test these APIs and ensure they are robust if they are not using them in their own operations? Also, if they want to add aggregator type features to their existing banking apps surely they will need to adopt OpenBanking APIs anyway? Or perhaps many will see a benefit to not adopting the vanilla OpenBanking APIs for their own services to make use of their own proprietary capabilities as a way to differentiate their digital experience.
Once the initial flurry of niche apps and aggregators has passed many will start to look at how they truly leverage APIs to change their customer experience and/or improve the efficiency of their operations. As the beauty of APIs (done right) is that they allow for easy re-use and the ability to plug into new channels and capabilities. Voice based devices such as Amazon Echo and Google Home are also powered by APIs — and so it won’t be long before basic banking capabilities are added to these devices (Naturally once the security issues with voice assistants are addressed — perhaps using voice print authentication?). Customers will be able to say “Alexa what is the balance on credit card X” and get a voice response, or “Google transfer 50 pounds to Alice”. Of course someone will somehow create an augmented or virtual reality experience that allows you to get inside your banking transactions. Perhaps when you point your phone at a credit card it will show you a balance and then provide options to easily see transactions? Or when you point your phone at a store it will show you how much you have spent there in the last 6 or 12 months?
Beyond using APIs to power new channels of customer experience we really need to consider the latest developments in Artificial Intelligence and Algorithms. Algo-Trading has already taken the Financial Services industry by storm — but imagine similar technologies and techniques applied to retail and business banking services? This is something that I coined the phrase “AlgoBanking” for in 2016. Imagine being able to tell a virtual assistant your financial goals — or a desire to get a better rate of interest. That assistant can watch the different products coming on the market, look at your balances, and then present you with a calculation of the different options. You can think of this as souped up price comparison services — instead of the customer needing to do their homework on different products technology does it for them. And for many who find taking care of their financial services a chore (and as a result do not switch account types) this could be a huge boon.
Of course opening up new channels and using AI presents challenges and risks — what if AI creates a poor customer conduct outcome as it doesn’t understand the full needs of a customer? This topic is a whole separate future article — look out for it!
But how could the traditional banks respond to these risks? Certainly embracing OpenBanking and the FinTech ecosystem rather than observing and dealing with it at arm’s length. It is not enough to simply observe — by the time a customer trend is spotted it will be too late to respond and compete (unless they can buy up the successful disruptor firms). They will need to embed this new thinking into their culture and create (or strengthen) strategic partnerships with FinTech, technology and consulting firms. This of course could be a lower risk way of re-imaging the core banking platform — rather than a bank spending their budget on internal digital transformation — transform through acquisition of proven FinTech platforms.
Whatever the banks choose to do it certainly promises to be an interesting period of change and perhaps for once you can honestly say that banking is exciting!!!
Whilst this article shares my own personal views and not those of my employer — they have also published quite a bit on this topic including this piece on the potential of fintech — and some of the links in the article above.
* The eagle eyed of you will see that I look for any far fetched reason to include a picture of lego in my posts!
Originally published on LinkedIn. Comments and discussion live there.