With the Payment Services Directive coming into force across the European Union in January, banks are now more motivated than ever to think through what it means to become an open banking platform. Referred to as PSD2, this new directive requires banks to create systems so that they can pre-approve payments and account sharing where the end customer has given their consent. While the regulations don’t say how this should be done, pretty much everyone agrees that APIs will be the most efficient mechanism for banks to use.
As a minimum, banks would then be required to make APIs available so that third party payment and account information providers could automatically access a customer’s account. But where banks value innovation, they can become an open banking platform that fosters a wider ecosystem of fintech and retail partners who are bringing in new customer markets and enhancing loyalty with existing customers by offering them new digital products and services.
In September last year, when APIdays conducted our industry research with 22 banking executives around the globe, there was still a lot of reticence amongst banks to seize a platform play now. As our State of the Market: Banking APIs report showed (sponsored by Axway and CA Technologies), while the leaders within banks did see open banking platforms as an inevitable part of their future, few were willing to expend all their political capital on advocating the case internally. One respondent told us:
One of the main insights especially with the PSD2 regulation is that this could be a huge opportunity to create a new business model, or it could be a big threat (where you become the backend for speedy fintech and Apple: they could take over the client relationship). It is a strategic decision: do you want to be the ultimate backend for all of that or do you want to continue with the customer relationships?
That very question has now come to the fore, with new articles and publications coming out this month aimed at helping banks work through that decision.
Banks need to be prepared to use the Access to Accounts (XS2A) provision within the new PSD2 regulations to its full extent. It’s not just about complying with requests to provide their API, but building the kind of sticky, high-frequency use services that they can then plug their rivals’ APIs into, ensuring that they are the brand that customers have facetime with.
Banks need to think through how they will leverage APIs to create platform business models now, lest industries like telecommunications do it for them and become the banks of the future.
Former APIdays keynote and Vice President of Research at Gartner, Kristin Moyer, continues to urge banks to think through what becoming a platform means. In an analysis piece for ProgrammableWeb, Moyer argues that banking platforms are now ready to go mainstream, with CEO business priorities, digital transformation, competitive pressure from fintech startups, and PSD2 regulatory advances all creating the perfect storm to force banks to rethink their industry positioning. Organizational culture remains, Moyer laments, the difficulty in getting banks to change their mindset.
CA Technologies hopes their new ebook will help with that. They partnered with industry news site Finextra to write Preparing for PSD2, which focuses on the sort of mindset that banks will need to cultivate in order to transform into a successful platform that leverages the PSD2 regulations as an opportunity rather than as a minimum requirement.
For banks and fintech curious about what an open banking platform could look like, Open Bank Project have partnered with Emirates NBD (one of the largest banks in the Middle East) to host a global fintech competition. While the open competition round has now closed, watching what competitors produce at the April 15–17 hackathon in London could spark the creativity of the possible for some banks and startups.
Jack Gavigan, Member of the UK Open Banking Working Group, currently focused on building an Open Banking API Standard Framework for the UK that aligns with PSD2: https://twitter.com/JackGavigan
Welcome to a new content experiment for our APIdays Medium site.
Starting this week, we will be doing monthly roundups of four key topics in the API economy:
banking and fintech APIs
The topics reflect some of the key ideas we discuss regularly at APIdays and are often central to our conference themes (for example, our London APIdays event has a focus on banking and fintech APIs, whereas our Australian and New Zealand events tend to focus on how businesses are leveraging APIs to become platforms).
If you have news to share about any of these topics, please reach out to us.
Founded in 2012 in Paris, apidays has organized 45+ events in 10+ countries, gathering over 20,000 attendees and 2,000+ speakers. Its aim is to democratize and evangelize the opportunities and the use of APIs for corporations and businesses to fully enter the next wave of the digital transformation, the era of automation.