Open standard API will benefit the innovators
Security & Regulation The government wants more competition in the banking sector by delivering an open standard Application Programming Interface (API). techUK’s head of financial services and payments Lisa Moyle welcomes the move.
A banking sector that is, post financial crisis, even more concentrated does not fit in with the government’s vision for the sector.
The government remains a firm supporter of the increasingly dynamic FinTech industry. By requiring banks to open up their APIs to innovative new entrants, challengers can overcome current competitive hurdles because access to financial data will be equalised.
An API is a set of routines, protocols and tools for building software applications and, on a level playing field, outcomes would be based on who provides the best product or service rather than historical advantage.
Access to a rich pool of transaction data from financial institutions will enable financial market innovators to develop a whole new range of products that could help consumers manage their income more effectively, facilitate account comparison tools, and make available tailored and affordable financial advice, which should lead to better lending decisions.
The government’s support for FinTech already comprises a broad range of policy initiatives. These include the appointment of Eileen Burbidge as special envoy for FinTech, regulatory support for new entrants and a willingness to assist and encourage tech-based innovation across financial services.
However, the vast majority of current accounts (77 per cent) remain with the incumbent banks.
To date, it has proved difficult for these consumers to access their own banking data and, at present, they may well be violating the terms and conditions of their bank when allowing third parties to do so. The development of open standard APIs, which would grant consumers greater control over the use of their data, should also provide more clarity as to whom they are giving permission to access their IT, how it is used and, importantly, the ability to revoke that access if they want to.
There has been a lot of innovation in the financial services sector in the past few years and London is regarded as a global leader in the FinTech space.
A wide range of new entrants have demonstrated they can develop more personalised, transparent and competitive services for UK businesses and consumers in a way that traditional banks could not or simply have not in recent years.
Of course, the banks have not been oblivious to this changing landscape.
They recognise the threat of new entrants, particularly technology companies, who have been chipping away at their dominance in key areas of financial services.
Many have already opened up their APIs to innovators to help them create a new range of improved services and products. However, it simply hasn’t created institutions agile or innovative enough to meet the competitive challenge that lies ahead. Banks need to embrace an open data, API world with a strategic response as opposed ad hoc permissioned access.
In the absence of a more strategic view of open data and the role of APIs, banks could be resigning themselves to a future as the highly regulated ‘dumb pipes’.
They would provide only the platform on which agile FinTech innovators deliver a wide range of product and services that are better tailored to meet ever-changing customer demand across a wide range of channels in a 24/7 world.
Perhaps the future of UK banking will look more like Fidor Bank, a fully online bank founded in Germany and recently launched in the UK. Its strategy, apart from being digital-only, is to open up its APIs to developers to create improved interfaces and apps for its customers. It relies on openness and collaboration.
Incumbent UK banks, with the benefit of scale and many years’ worth of customer data, reinvigorated by a programme of core infrastructure renewal and embracing an open standard API ecosystem, may well be capable of playing a key role in this evolving landscape.