Mark Boyd is an analyst and founder of Platformable. Mark has been responsible for writing many reports on the open banking platforms and other types of platforms happening around the world. Mark has talked to us about APIs, open ecosystems, and the emerging future in this article.
The handbook of digital innovation says that things are changing rapidly. We are globally introducing a lot of digital infrastructures that will be able to drive how we interact and connect. The industry is changing. The whole vertical idea is breaking down, and different players are working across different industries.
During COVID, mobile telephone operators have been essential in helping with health infrastructure. They have been able to track population movements, which has then been able to help identify where we’ve needed to focus globally on hotspots and be able to introduce new health measures.
Thus, a telecommunications company is working across a range of different industry groups. It introduces a dynamic complex, so relationships are pretty different between government, industry, nonprofits, and the community. Also, there’s this issue where the infrastructure that the companies are contributing is also going to be the digital infrastructure that we’re all using.
In many low- and middle-income countries, Stripe is becoming the payment infrastructure for that country. In some countries, it is becoming the infrastructure itself. What does that mean around regulation and their role in those markets? There are new forms of collaborating and competing that we’re seeing amongst all of these industry players.
Consider Open Banking. Nearly every continent around the globe is moving its payments and banking infrastructure toward this digital system. A whole range of regulations is trying to shift banking to become a global digital infrastructure. There is a more significant opportunity to build new products and services. When you have banks, they’re forced only to perform banking services. When you move to open banking and digital infrastructure, it allows a whole new range of players to enter the market and provide more differentiated services.
An open ecosystem is made up of
- stakeholders themselves
- relationships between those stakeholders,
- the infrastructure they need to be able to co-create, collaborate, compliment, and compete with each other.
An open ecosystem is a network of equitable participation opportunities that allow the stakeholders, governments, regulators, associations, industry, business researchers, community, and individuals to co-create, collaborate, compliment, and/or compete with each other by using APIs and digital infrastructure. The move towards digital infrastructure should enable everyone to be involved. The open banking idea breaks down the banks’ dominance over the banking and financial services industry, which has locked out certain populations in the past.
The idea of moving to digital infrastructure is that it should be easier for start-ups to enter and compete against incumbents. You should get a level of digital service delivery that will target new products on particular populations and invite them to use the infrastructure rather than some of our more traditional systems, which marginalize certain parts of the community or specific industries.
Let’s talk about two examples.
- Open Banking Ecosystem
Governments might tell a regulator that they want open banking regulation. It goes through a consultation process, and the open banking regulation is introduced. In this case, the banks are building their APIs. They may draw on standards bodies to be able to build those APIs in a standard and consistent way. Then those APIs are released. How well those APIs create value for other stakeholders will depend on the developer experience of those APIs, their ease of use and ease of integration into new products and services, and the level of security. These are value enablers and will drive the amount of value from the APIs into the rest of the ecosystem. API tool providers and consultants generally tend to help at this stage to develop APIs. They may be contributing to their API design, lifecycle software, security software, and the rest.
Then come the API consumers, the aggregators, marketplaces, and FinTech building new products. Those new products will then serve a whole range of different population subgroups and parts of society. Here’s where equitable participation comes in, where FinTech can enter the market. If we’re moving to open banking systems, the unbanked should be able to access a new range of digital services that they weren’t able to in the past.
In high-income countries, including Australia, Europe, and the US, there are 20% of bank users who don’t have access to a full range of financial services that they should be able to access, like alternative financing that isn’t going to have crippling fines that may impact their future financial health.
Other consumers are individuals and households, sole traders, small businesses, and enterprises. Each of those will draw on several FinTech products built specifically for them. They’re going to be able to increase their financial health and ease the level of interaction.
Indirect beneficiaries like the society should benefit because it’s just more seamless, it’s easy to do things, and there are greater opportunities for everyone to be involved. The economy should benefit because FinTech can employ more people and pay more taxes because they can generate new revenue. The environment should benefit because the optimization of the systems should mean that there is less resource waste around how these systems function. Now that we’re moving towards this open banking ecosystem, many FinTech players are creating new, environmentally friendly products.
For example, in FinTech, there were budgeting apps that were able to help some of these end consumers better understand and track their expenses. But many of those budgeting apps have also been able to do carbon accounting. They’re able to share how much their expenditure is creating a carbon footprint and compare that with others and enable them to reduce it.
- Open Health Ecosystem
This is some work we did with World Health Organisation during this year (2021).
We have datasets about people, organizations, society, and the environment, either from the health system or outside the health system. Data stewards manage the data flow. Data organizations pull that data, process it, and then share it via API with various industry players, research, healthcare, industry, and even media. The Standards bodies and regulators are influencing how that’s done. Data governance and API governance processes help ensure that there’s a flow of trust in this system. Once the API has processed this data, it can be shared in ways that generate and create new value, e.g., analysis dashboard.
APIs help with better health outcomes because you can do more personalized health care and reduce inequality. You can focus more on those with the most significant health need and optimized health systems because you can do resource allocation better.
APIs are a set of functions and procedures that enable the creation of applications. APIs are the connectors that link systems together, but they use a clear contract on what can be shared between them so that accessing permission controls are baked into the API. The agreement between the different players and the relationship is formalized via the API.
Types of APIs
APIs don’t have to be open and freely available in an open ecosystem. In that system, you’d need to have some guardrails; you need to have APIs that will have specific relationships between them.
Open APIs, publicly exposing information or functionalities between them, can be used as the standard unit in different systems. In open banking, for example, in Europe, in Australia, now, banks are required to make payment APIs and account information APIs available for free so that FinTech can build new products and services that integrate those APIs. The APIs themselves are free. FinTech must be accredited to demonstrate that they’re responsible and have the security technologies in place. If they integrated the APIs for an individual customer account, they could manage that data or the functionality securely, without introducing fraud or data breach risks. The APIs themselves are open to anyone for use, as long as you can be an accredited provider. But you could test building with them without having that accreditation. Then if you’re trying to go to production, you need the accreditation in place.
With banks in an open ecosystem, you can have open APIs freely available but under regulation. They’re required for banks to be able to make available to increase that consumer choice. But then banks can also then have premium APIs that they make available to select FinTech that they want to work with. Or they can be open to everyone at a fee.
For example, if you want to look at financial exchange data, you can add that into your ERP systems. You have to be a bank customer to make use of that API. So, it’s an open API, but there are limits on who can use it or its costs.
Partner APIs might not be displayed or cataloged publicly. It is a Partner API when there’s a relationship between different stakeholders where they’ve entered into an agreement to be able to share shared data across systems or share functionalities across systems, and the API might not be publicly exposed. You might not even know the two businesses had a relationship in which they share an API.
Private APIs are behind the firewall or within an organization and drive DevOps processes, speeding up and accelerating the level of development internally.
Government API approaches
We developed the API framework for digital governments for European Commission. We noticed that the governments do various things with the APIs. They have multiple roles in this system.
They may have open APIs that are sharing data, or they may be partners between different levels of government where they’re sharing data. Internally, they might have private APIs where they’re creating a form filling API that’s used across multiple government departments to enable citizens or businesses to fill out a form.
They might have partner APIs working with machine learning and artificial intelligence to ingest large amounts of data and make that available to researchers to understand better what future digital government services or how to run city planning for government.
For example, in Australia, under the Consumer Data Rights legislation, there are rules around how a banking API should be templated and provided so that it’s been used by different industry players.
Co-create – The use of data, open APIs, and other digital components that allow consumers to build their own value.
Example – In open banking, large enterprises may use a bank’s APIs directly in their ERP systems to automate foreign exchange rates in real-time.
Collaborate – When two or more entities identify a customer experience that they can deliver together, utilizing their respective core competencies.
Some of the work around COVID has brought together different players to be able to provide data in new ways. You see a lot of the software as service tools will have an integration marketplace.
Complement– When APIs are used to create additional value to a customer or user base.
They’re not competing against an invoicing tool integrated into the CRM or building it; they are connecting via API to complement the CRM to extend to new functionalities.
Compete – Stakeholders directly compete with each other.
Different providers will provide different Payment APIs. The business will choose which one of those Payment APIs to use.
Coordinate – There’s the option to work together; you see this where stakeholders have been involved in standards.
When we’ve got open ecosystems, we’ve got the APIs; we understand the relationships between the various players. What do we want to measure in that sort of open ecosystem?
First of all, we want to make sure that we achieve the regulatory goals we want. Suppose an open banking ecosystem is about making sure that there’s an advanced consumer choice. In that case, we want to make sure that the new open banking system isn’t repeating the marginalized approaches of the past and putting and locking some community sectors out of opportunities. For example, you could do some work where you’re looking at the open ecosystem, and you’re asking, who has access, what the consequences are, and who is participating. Hence, you’re able to look at that level and drive into where the open digital infrastructure is supporting or not.
For people, you can identify new opportunities to see where you can provide products and services in untapped areas. From a business point of view, you can see where a bank in Spain, for example, has identified what they want; they can’t keep up with things like conversational banking, they can’t keep up with offering the whole range of corporate banking opportunities. So then, by looking at their open ecosystem and their role in it, they’re able to say, “Okay, we want to have partnerships that are helping us build new products in those areas.” You can also develop new business models when you’ve got this idea of what’s happening with your place in the open ecosystem.
For example, we’ve done some work, just looking at one of the API aggregator platforms in the payment space, and then we mapped out who’s involved in what products are being built. When you do that, you might say, “Okay, we’re not targeting these individual and household products, consumer market so that we can work there, or maybe we’re seeing a huge amount of drive with fintech thing coming through distribution channels. So this is working for us; let’s increase this.” So it gives you more insight into where there are those opportunities to develop your relationships and address some of the gaps.
Finally, you can solve complex problems. Let us look at the COVID example. We can see how APIs and sharing of data have enabled infrastructure to track variants globally and then be able to respond faster as far as being able to increase, adapt vaccines for the future, and address where resources need to go.