Focusing on banking and fintech APIs at API Days London (which we are co-organizing with the Open Bank Project) is a natural fit: first and foremost because London is considered the international finance capital of the world, recently outranking 29 other international cities in terms of technological readiness, economic clout, and capacity as a city gateway.
Secondly, our conference venue, at Level 39 Canary Wharf, is a hotbed of fintech startups and innovators and is representative of the city’s financial dynamism: a microcosm of the sector’s expertise and global readiness.
And while there may be some argument that the city has been ready for an event like API Days for some time, it is 2015 that shows clearly that this is the year that the banking and fintech sectors themselves are now just as ready to host the API conversation.
We have identified six sure fire signs that 2015 is the year to be exploring how banks are taking up APIs, and how fintech businesses can either collaborate or create competitive advantage by leveraging API technologies:
- Changing cultural norms means banks are more ready than ever to implement an API strategy
- Greater workforce readiness amongst some of the largest banks and financial enterprises
- Emerging leadership from smaller players that are demonstrating to larger banks how to utilize APIs
- Increasing startup competition is driving the need for agility amongst larger, more traditional enterprise players
- A changing regulatory context is forcing all banks to consider how to modernize and manage new compliance requirements; and
- Growing data capabilities means that banks and fintech are thinking of new ideas, products and solutions.
1. Changing cultural norms
For at least three years now, leading industry analysts have been arguing for banks to seize a digital transformation agenda. For example, in her work with Capgemini and the MIT Center for Digital Business, Claire Calmejane (Director of Innovation at Lloyds Banking Group and one of our speakers at API Days London) looked at long-term strategies and new banking functionalities that had the potential for a quick-win adoption path.
Many of these ideas (customer centricity, mobile banking, smart data, social media conversations, and core system flexibility) rely on APIs. While most banks have made some headway with mobile apps, using API-first design principles to create ongoing mobile experiences is in its infancy. In fact, it is only since the start of 2015 that many banks are truly starting to consider APIs as the key enabler that allows a modernization and transformation in banking to occur.
Banks like ING are leading the cultural shift and showing that when it comes from the Executive level, it can at least open up new opportunities. (In many cases, IT Architects and Divisional Business Managers still have the hard task of convincing the mid-level that APIs are the answer, but having Executive leadership is definitely progressing the conversation faster.) In an interview earlier this month on the Financial Times, ING CEO Ralph Hamers reframed the whole banking industry as being inherently a tech industry. He told FT’s Banking Editor Martin Arnold:
We all have to recognize that technology is what banks do…Banking is immaterial. Our products are immaterial. I give you a mortgage and it is important to you, but it is nothing more than a digital number because you don’t see the money or even the paper any more.
This sort of mindset has made the transition easier for banks like ING who have actually grown their customer numbers at a time when other banks are shrinking.
One of their latest flagship initiatives is their forthcoming InsideBusiness product. Aimed at commercial customers, this website and app will draw in multiple datapoints initially from within the bank’s own data sources but could conceivably be mined with external data sets as well. “InsideBusiness will bring together all our channels, products and services on one platform with a single sign-on and a single contract for our clients to truly create a “One Bank” experience. This will allow customers greater access in real time to the critical information that affects their companies’ financial positions and empower clients to conduct more transactions themselves,” explains Steven van Rijswijk, ING’s global head of Client Coverage.
Providing a single source of truth and single platform for bank account customers and businesses is one of the key product drivers that is leading banks to investigate APIs. Many are hopeful that APIs will give them a way to integrate various data sources, and create new customer-centric products with a faster-time-to-market.
2. Greater workforce readiness
The recent launch of Hygieia, an open source DevOps dashboard, by U.S. banking leader Capital One is a key example of the banking sector’s developer and leadership workforce being more ready than ever to implement an API strategy. Hygieia is a similar idea to ING’s InsideBusiness, but with the datapoints all being key metrics for an IT development-to-production workflow.
“We at Capital One are committed to continuous delivery and continuous integration,” says Tapabrata ‘Topo’ Pal (Director, Enterprise Arch, Cloud Computing, Capital One).
Pal’s goal in leading the development of Hygieia was to “shorten the feedback loop and amplify it”. (It is a similar goal many enterprises have when using APIs overall: the idea is that by integrating various datasets and banking functionalities via API, enterprises can speed up development and more quickly identify when customers and partners experience problems working with banking data and services.)
Pal says that initially the Capital One team looked at open source and commercial tools and could not find one that could collate performance metrics across the various tools they use in their full stack development pipeline.
Building the dashboard themselves, the open source project makes use of APIs from dev tools like Jira, GitHub, Hudson, Jenkins, Sonar and others. The project uses APIs to plug data from those primary source tools into a realtime visualization display.
“The overall architecture is a MongoDB database. We created a generic data model that doesn’t tie us to any tools. We make a wrapper around a particular tools’ API and then we store the data from it in MongoDB in generic JSON,” Pal explains.
Out of respect for the open source community that has made so much of their enterprise software a possibility — and no doubt to win kudos with their own developer workforce and potential new employees — Capital One has made the whole project open source.
“So one of the cultural things that Capital One has already gone through is that the enterprise has been using open source for some time, and it is time to give back to the community. Our main focus has been agile and cloud, we have mobile apps, our thoughts are going towards innovation and how to speed up development. We encourage innovation,” Pal says.
While the project focuses on DevOps metrics, what is at the heart of it is an API-driven architecture. The creation of the tool means their inhouse developers had to familiarize themselves with other APIs and got a chance to see some industry best practices around building API wrappers and integration tools. Through the project, Capital One has ensured a developer workforce that is confident with integrating with external APIs and building data flows that draw from disparate data sources: a key capability that will be required as banks seize the API advantage.
“APIs are central to our development all the way across: we have a big focus on API driven application and microservices architecture and that is the current mindset in our digital platform. We do have a managed API platform. Most of our applications are API-driven, and the whole culture sits around that architecture. We believe all APIs should be publicly consumable, but not necessarily all be exposed, but if someone wants to use it that way, we want to be ready for it,” Pal says.
3. Emerging leadership from smaller players
Smaller financial institutions are demonstrating how banks can implement API strategies and are acting as examples that banks can follow.
Loren Paulsen is Software Development Manager at Maps Credit Union in the U.S, and led a work program that saw the Oregon-based credit union recently receive the prestigious Celent Financial Services Industry Award.
“The award was a reflection of our culture and our use of APIs,” says Paulsen. Paulsen says the journey started several years ago with the enterprise’s core conversion to DNA from Fiserv, a banking IT hub that includes an open API allowing users to access its data and banking functionalities.
“A major decision criteria for us was the presence of an open API. It is a mindset that is not terribly common in the credit union industry,” says Paulsen. (While such an option may not be available to banks, many are seeking ways to create an abstraction layer on their legacy systems that builds an API gateway to their banking functionalities, in much the same way that DNA channels access to banking functions through its open API.)
Maps Credit Union then initiated an Idea Lab to help various departments identify new opportunities to leverage the power of APIs.
“Through the open architecture, we have been able to automate very easily. Drawing on multiple APIs and composing them together is becoming a reality for us,” Paulsen shares.
Paulsen has been able to lead solutions that couple internal banking data with external APIs to create seamless workflows that end up in significant administration savings for the credit union.
“We have these insufficient funds notices, and we were able to use the Sendgrid API to send out these notices, paperless. In another case, where we have our own text banking platform, we are using the Twilio API as the backbone of that service. Another API we use is Formstack that allows our marketing and other departments to make their own forms and we use the Formstack webhook to draw stuff back to us to use programmatically and start automatic workflows based on those form submissions,” Paulsen describes.
Paulsen says that one of the advantages of this is that the credit union is not locked in to using software that it doesn’t need, but can instead be nimble and gain “a more powerful result just using the API”.
To encourage other departments to understand what is possible, Paulsen’s Idea Lab team would meet with various internal stakeholders and identify tasks that required spreadsheets or email reports, or that tended to involve repetitive administration tasks. He gives an example where at the start of each day, accounts that were overdrawn would be marked with a warning flag. Before their API infrastructure was in place, someone would manually mark each of the day’s accounts to be locked, based on the day’s report. Now all of that is done automatically via API.
The approach reflects a key API enabler that Matt Graney, VP of Product Management at API Management Provider Axway says is at the core of how banks and other enterprise need to operate:
The organizations that will succeed in the modern business era are the ones that don’t approach digital business as a new mobile application, but rather the ones that secure, manage and control all aspects of new data flows and business processes.
4. Increasing startup competition to banking traditions
In Inc 500’s recent article on Why fintech is one of the most promising industries of 2015, Senior Editor Maria Aspan writes: “Long seen as a highly technical, highly regulated industry dominated by giant banks that resist disruption — other than the occasional global meltdown — finance is now riding an entrepreneurial wave.”
It is an increasingly recognized perspective that is the central tenet of James Haycock’s Bye Bye Banks (written with Shane Richmond): “The financial services playing field has been changed irreversibly in recent years by a new generation of companies and leaders who have torn the rulebook to pieces, adopting new technology, introducing new working practices, and serving customers whose lives are increasingly orientated around their mobile phones”, writes the Managing Director of Adaptive Lab.
The growth in startups offering payments, consumer and business lending, investment decision-making, money transfers, currency conversions, and a plethora of auxiliary fintech data services has added pressure on banks to innovate as well as expanded the finance industry landscape with a whole new generation of agile product and service providers.
Haycock says one of the advantages of these fintech startups is that they have built an API architecture from the start, in tandem with a customer-centric focus overall. Banks are tied to legacy systems that slow down their agility to adapt to new customer needs and market opportunities.
One of the solutions Haycock and his Adaptive Lab team advocates, then, is a Beta Bank model built on ten principles of agility and lean management. Clearly, the principle to “design technology and data that enables agility” speaks to the idea of an API-first approach in order to create new bank products that can reach the market quickly, and respond to customer demands for realtime insights into all of their financial assets in the one place.
Some leading banks wanting to compete against these new players have already begun to implement a Beta Bank vision internally. The idea is evident in new intrapreneurial models being trialled within larger banks, to prevent them from being weighed down by their own legacies, and to cultivate the capacity to implement more lean, agile models that draw on customer feedback and product iteration.
Innovation hubs like BBVA’s Open4U and BNP Paribas’ L’Atelier Lab have been specifically created within those existing banking institutions to allow banks to compete more effectively (and, at times, collaborate more openly) with the strengthening fintech sector.
5. A changing regulatory context
APIs are also expected to help banks and fintech companies to meet new regulatory requirements in Europe, the UK and around the world.
Already, many banks in Europe are looking at the potential impact of the European Commission’s Directive on Payment Services (PSD2), and in particular the Access to Acount (XS2A) provision. The existing PSD is the legal context for an EU-wide single market for payments, and PSD 2 is set to be voted on by the European Parliament in the first week of October.
The new Directive will introduce some compliance requirements for banks and other financial institutions, including the enforcement of new security requirements and interoperability standards aimed at reducing barriers to entry for non-bank card and internet payment providers.
The PSD2 XS2A proposition looks set to enforce the right of third parties to be able to access bank account providers in order to provide payment and other financial services. Innopay consultants Mounaim Cortet and Douwe Lycklama recently explained the potential impact:
PSD2 XS2A can be considered an accelerator for technology driven disruption of incumbent banks by flexible and innovative service providers that target not only the payments value chain, but every single ‘piece’ of the universal banking model. These innovative players threaten to capture revenues long taken for granted by incumbents. This development of digital transformation will disrupt the complete banking sector as we know it today and will require incumbents to adapt their business and operating model.
Meanwhile in the UK, plans for a mandatory open banking API standard were included in this year’s March National Government budget, after having been introduced into the UK Treasury’s Autumn Statement last year. The move will require a level of API standardization so that third party providers like application developers can securely access account data from any UK bank (with the customer’s permission).
Banks will need to be able to have the infrastructure in place to implement such a standard, but will also have to innovate and act quickly to provide competitive products. The race will be on when other banks — and other fintech players — start using the data flow that such a standard could make available to everyone. There are also opportunities for banks to partner with third party providers to create new business models based on collaboration and that combine bank’s traditional strengths with fintech startup’s agility in product development.
6. Growing data capabilities
Amongst all of these pressures and changing landscape, banks and fintech startups are discovering yet another key truth: data is currency.
Banks sit on a wealth of data that can be aggregated to provide crucial insights into finance markets, supply chains, and consumer behavior. Transactional data at an aggregated level can help logistics and warehouses optimize their distribution and supply chains and reduce waste; can generate insights into population flows and travel patterns for cities, transport and travel companies; support retailers to manage stock and push sales timed to consumer demand; and assist lenders and insurers to better identify and calculate potential risks.
Banks are beginning to see how APIs can help them to draw this data out of their own systems, clean and analyze it, mix it with external sources, and build analytical tools for internal use and as new business-facing products.
Chris Haddad, VP of Technology Evangelism at WSO2 describes the new business model opportunity for banks in a white paper on an API management technical evaluation framework:
Instead of delivering static, monolithic products and services, APIs create an opportunity to whitelabel, embed, and monetize business capabilities. Business teams are offering content brokers and information hubs that share data aggregated from millions of devices and billions of customer interactions. The aggregate dataset can help identify trends, structural market shifts, and economic patterns.
Adrian Hausser, from global consultancy firm PayX works with top tier banks and payment businesses to help reorient major institutions to the new global financial industry marketplace. He sees APIs as being the key technology that can help banks position themselves, and that will allow new fintech players to enter the market. Speaking at CA Technologies’ 360 Summit late last year, he explained that APIs are the enabler that helps financial institutions create value in their relationships with customers. Opening up transactional data is a key example of the sort of new value that Hausser says can be created. It is a model that is already being experimented with by some of the world’s leading banks.
API Days London speaker Carlos Kuchkovsky, for example, has worked with BBVA’s Innovation team to make large transactional datasets available via API to encourage external developers to think through what sort of new products could be possible with access to a bank’s anonymized transactional data stores.
2015 and Beyond
How these six drivers are influencing decisions by banking and fintech leaders will be a key discussion point throughout API Days London. Talks by Kristin Moyer from Gartner and Nicolas Debock from Balderton Capital will describe how the financial industry landscape is changing and how APIs are at the center of successful digital transformation. Speakers from some of the globally recognized innovative banks including BNP Paribas, Ulster bank, Lloyds Bank, AXA and BBVA will share insights into how they are reorienting their businesses to take up the API advantage. Simon Redfern from Open Bank Project, Mark O’Neill from Axway, and Ronnie Mitra from CA Technologies will share how APIs can be managed to enable organizational change. And a whole range of fintech startups will share technical and business skills on how they are using APIs to create new customer experiences.
Join this forward-thinking discussion with us at API Days London on 23–24 September.
Written by Mark Boyd for API Days London. Mark is an API industry analyst and writes regularly for tech journals. He is currently working on a deep-dive industry research report for API Days and Open Bank Project on Banking APIs, looking at effective business strategies and emerging infrastructure needs.