Open Banking… Are We There Yet?
April 28th, 2020 by Dipti Joshi Vidwansa Managing Director and Founding Member, Fresh Gravity India
In today’s world, there is a lot of talk of open banking. Even though financial institutions have achieved certain maturity in their digital transformation journeys – are they truly open?
While working with many financial institutions and banks over the last two decades, I have seen the banking and financial sector going through multiple transformations. It started from digitization of physical records to customer self-service portals to the bank in your pocket through mobile applications to API centered transformations – I think we have seen it all. All banks have gone through that painful shedding process and haves emerged with a renewed strength. I think in today’s world, every bank deals with APIs in some shape or form.
Open banking is a driving force of innovation in the banking industry and exposing APIs can create significant new revenue streams for banks. With emerging new and innovative fintech startups, core banking institutions can back them up with rock-solid platforms and their experience in banking.
By productionizing and monetizing array of financial services, banks can create an ecosystem not only to support these fresh ideas but also to stay ahead in the game by staying alongside everyone. They can offer a seamless customer experience on the front end and have multiple interconnected service providers in the back. Progressive organizations are building APIs not only for their own operational needs but also for outside consumption. For businesses, productionizing API based technologies allows not only to digitize, automate, and monetize their business functions but also reach more markets with less investment as well as diversify into new markets faster. APIs on their own can be viewed as products.
We can broadly define a bank’s journey towards open banking along the following key milestones:
- APIs for internal consumption. i.e. for improved operational efficiencies and system integration.
- APIs for trusted third party developers and channel partners by providing them an API marketplace.
- APIs listed from partners and third-party vendors through the bank’s developer portals.
- APIs aggregated / combined across multiple financial institution through a single API offering from the bank as an API aggregator.
- Finally, offering a set of open APIs to enable developers to integrate banking products and services into their own apps. This will enable banks to offer white labeled products and services for external service providers to use under their own brands.
While banks, small and big, have already started their journeys towards open banking they face many challenges to achieve the ‘Nirvana’ state. The obvious and bigger challenges are regulatory oversight, cybersecurity and changing business models. However, there are other challenges such as managing internal teams, optimizing processes and choosing the right set of tools. A lot of initial decisions are made to hop on the bandwagon of trends in the market. We hear from organizations that after starting their API journeys, they are migrating from one tool to another. The list of reasons is unending. Yes – while the start or even the journey itself cannot be perfect, we must challenge ourselves to think about – people, process and technology – all the time. Especially, decisions like investing in a technology have to be taken up considering many of the following factors and not just the cost. These include:
API business and technical strategy:
- Consolidation of commonly used APIs
- Central/ org wide API catalog
- Clear definition of the API roadmap
- API organization
- Cross functional APIs
- Central API governance standards
- Communication and training plan
- API development methodology
- API DevOps/ automation framework
- API technical standards
API implementation and support:
- Agile and DevOps based implementation approach
- API gateway/platform tool which is pivotal to the API program’s success
- Ability to support future performance, scalability and security requirements
- Ability to use wide range of a-la-carte APIs with self service
- Flexibility to upgrade using a well designed underlying microservices architecture
- Right level of support from product partners and the product stability
- Availability of trained talent pool for ongoing enhancement, support and maintenance
For the financial services industry and new entrants alike, it is important that all parties embark upon this self-assessment of the current state and define an API strategy roadmap accordingly.