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Going Beyond Compliance: How to Get Ahead in the API Economy

Balazs Fejes

SVP, Banking & Financial Services, EPAM Switzerland
  • Financial Services

At First Glance, Open APIs are an Expensive & Risky Compliance Burden

The revised Payment Services Directive (PSD2) in Europe is introducing new regulatory burdens for banks with its drive for Open Banking, but those forced to adopt these requirements are surely looking for ways that they can benefit along with their customers.

Open APIs represent a tremendous opportunity for banks across numerous verticals. While PSD2’s inclusion of open API requirements is aimed toward helping consumers benefit from more choice, stiffer competition, and better prices, it also allows banks to productize and market their proprietary APIs to other companies, including other banks, retailers, travel brands, and more.

The applications for open APIs are almost limitless, and Nesta, an innovation agency, is already planning an event that will put banks’ open APIs in the spotlight. At the request of the CMA, another regulator pushing Open Banking adoption in the UK, Nesta’s Challenge Prize Centre has organized the Open Up Challenge to find “20 winning entries from anywhere in the world that will use the UK’s open banking APIs - newly available from early 2018 - to transform the way small businesses discover, access, and use core financial products.” This is just one of many opportunities stemming from the open API revolution in banking.

Tips for Defining Your API Roadmap

Open APIs provide banks with an opportunity to develop a new way of interacting with their customers through intermediaries. Alongside the threat of losing your brand’s customer interface, there are potentially huge advantages here, too. Consider the advantages of the following, for example:

  • Getting best-in-breed customer interfaces and UX for your customers for free
  • Reaching a wider new customer base via a partner who is reselling your services
  • Being able to offer services way beyond the traditionally limited set of banking products

For banks, it’s best to start gearing up for entry into the API economy as soon as possible, even if that means you’re moving forward without a clear picture of what industry-wide APIs will look like and whether their interface definitions will be driven by regulations like PSD2 or broad industry consensus. Here are a few things to know – or reexamine – as you ramp up:

  • APIs are good for business: Investing in a proprietary API that offers all of the security and ease of use of your consumer banking application could mean that you can attract a wider range of intermediaries and be one step ahead of your competitors when it comes to taking advantage of their services.
  • Take a pragmatic, business-led approach: APIs open a new route to market, and one which is in many ways far more complex than just talking directly to an end customer. They are a technical enabler to a world of different strategic possibilities, and you should make sure that the technology side is working closely with the business at every step.
  • It’s better to give AND receive: Developing, productizing, and marketing your own APIs – and making sure they’re open – is definitely your first priority if you intend to fully exploit the API economy, but it’s also wise to implement an API platform and overall modular architecture that can grow with time and expand to provide a far broader range of services in the future than you might think is necessary now.

Open APIs are daunting, but the silver lining of being forced to adopt an industry-wide approach will be that some of the stickier problems around liability and due diligence will be handled by the regulatory regime rather than bilaterally. This means that banks can focus instead on the potential benefits in terms of customer experience, diversification, and new channels that are there to be taken.

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