Since the beginning of 2018, the open banking regime has allowed banks, fintechs, and other interested parties to share data securely, with permission.
At the heart of this is the application programming interface or API – but what do APIs make possible, and how will they improve the business models of those they provide services to? To answer these questions, and more, speakers at a recent online Sibos event shared their thoughts.
The chief benefit of APIs will be real-time connectivity between financial institutions, partners, and business or retail customers, said Dan Globerson, head of open banking at NatWest. “No financial institution or technology company can be everything to everyone,” he said. “Historically, banks and financial companies tend to deliver products and services through their own digital channels, some of which may be great. But at the same time, I think there’s a huge amount of relevance and convenience to other channels. Whether that may be cash-flow analysis for businesses, or providing customers with opportunities to interact with us and apply for products in social media or e-commerce channels, there’s a huge advantage for how quickly we can innovate.”
Shiny API people
While the initial focus for open banking has been on consumers, the power of APIs to help businesses streamline their finance function is just beginning to be felt. In Asia, the adoption of open banking for this purpose has been rapid. Sindhu Vadakath, head of global digital channels and payments product management in Asia for BNY Mellon Treasury Services, said the role of APIs is “essentially to enable our clients’ digital transformation journey”. This, she explained, is the “automation and streamlining of operational processes… [which] don’t really have to rely on batch reports anymore”.
APIs that can pass information in real time may, potentially, simplify complex multiparty financial processes that have been unchanged for decades. Wayne Hughes, head of data and digital for custody products at BNP Paribas, is using APIs to find opportunities to enhance the quality of the service his team can provide, for example by creating integration between business customer back offices and financial institutions. One simple example is providing an artificial intelligence (AI)-based chatbot to provide 24-hour customer service.
Historically, as a bank you think about a customer as somebody who has an account with you. We’re starting to think more about a customer as anybody who might want a financial product or service.
Head, Open Banking, NatWest
But his team is providing more complex integration, based on the role of a custodian. “Many of our processes that we have together with our clients are time-critical, and often require handovers between different entities and different platforms, so APIs are really a way to help us to ensure that all that processing is performed within the required time frames,” he said.
“We have five or more entities involved in a chain, going from an issuer, to a central securities depository, to a local custodian, to a global custodian, on to the final investor. You have to have data flowing up and down this chain in a short time frame. Usually, you have to provide deadlines to your clients that are hours before the true market deadline, limiting their ability to trade up to the real market deadline. If we could get all of the entities in that chain to use APIs, we could move to at least something closer to a real-time flow, with all the benefits that would provide.”
Plug and play
To accomplish complex integration like this, the industry will also need an ecosystem of intermediaries. While we are accustomed to thinking of the API as an aspect of a digital product, for some innovators the API is what they do, creating a platform to connect businesses with financial services. An example is Finastra, a fintech whose FusionFabric.cloud open development platform provides that essential plumbing: creating, in the words of Finastra’s Vincent Pugliese, senior vice president and general manager, platform, “embedded finance”.
Pugliese anticipates the emergence of what he calls “banking as a service”. An early example of this is Google’s Plex Accounts, which Finastra is helping to provide. Plex is a development of Google Pay, announced in November 2020, which Pugliese describes as “embedding the account origination capabilities directly into Google Pay”.
When the consumer interacts with Google Pay, they can select which current or saving account they would prefer from the options that Google offers. At the moment, 11 banks are signed on in the US, with data passing from Google Pay to the banks in real time.
The long view
In the past, a business or individual has had a relationship with a bank that has tended to be long term, and exclusive. In turn, banks have offered services only to their customers. Open banking, facilitated through an API, offers huge potential for banks to broaden their horizons, said Globerson. “We are redefining who our customer is,” he added. “Historically, as a bank you think about a customer as somebody who has an account with you and, over time, you might deepen that relationship. We’re starting to think more about a customer as anybody who might want a financial product or service. So our customers aren’t just the 10 or 15 million we have now; our customers might be 65 million in the UK, they might be millions in the other markets we operate.”
The emergence of open banking, facilitated by APIs, is guaranteed to turn some bank business models upside down. But the question of where the return on investment comes from for banks like NatWest is one that Globerson is happy to ask, because he believes this wave of innovation creates new opportunities to improve customer experience. “It’s a question that is similar to asking what was the return on investment 25 years ago in digitising banking? What was the ROI in having a mobile app or integrating with ERP [enterprise resource planning] platforms? When we ask these questions, it’s a tipping point for us because we look back 18 months afterwards and think ‘how could we not do that?’. That’s the way we’re looking at this.”
How can my business use NatWest’s APIs?
NatWest offers a wide range of APIs that help businesses improve their products and services. These APIs are already used by around 200 third-party providers, ranging from fintech start-ups to large corporates.