Open banking APIs have arrived

The first wave of disruptive open banking platforms from major financial institutions is hitting the market.

Almost two years ago, my colleague David Bressler mused that in the near future, banks and other financial institutions would have to start thinking like software companies, develop open API programs, and transform themselves into platforms – or risk becoming irrelevant in the application economy.

That time has come. Since his article was published, the traditional banking paradigm has been shaken up by a trifecta of three converging trends that are acting as catalysts for change in the finance industry:

  • Surging customer expectations. The speed and user experience of today’s mobile apps and cloud services have taught today’s customers to expect higher levels of convenience and utility from every transaction and inquiry.
  • Regulatory pressures. Where previous regulations such as PCI-DSS and SOX focused on the integrity of internal systems and processes, today’s legislative trend involves the form and security of connections outside the enterprise. First up in this legislative trend is the revised EU Payment Services Directive (PSD2), which will require financial institutions to open up many types of customer interaction to third parties.
  • New competition and co-opetition. Whether they are new products from established players, or one of the $10 billion in fintech startups that hit the scene last year, the market is being flooded with a wide array of digital financial services. Whether they compete with or augment traditional banking capabilities, they are certainly keeping banks on their toes.

 

What’s the general state of the market?

In our recent study of 22 leading banks and fintech institutions, the majority indicated that they were still focused on internal APIs that are used to enable their mobile applications and provide access to bank capabilities in a legacy infrastructure. Almost all of the respondents believed that these core APIs are essential for regulation and compliance, back-office systems management, and for leveraging big data.

Despite this internal orientation, many banks indicated that they were building their APIs in a way that will make it possible to open them to third parties in the future. And, in fact, a sizeable minority had already begun deployment of these APIs for both partner (20%) and public (20%) consumption.

For more detailed insight into what banks are actually doing with their API programs, download a complimentary copy of our primary research report, Banking APIs: State of the Market.

Who are some of the pioneers in open financial APIs?

As PSD2 and fintech startups put the spotlight on new business models in banking, a couple of established players have recently seized the opportunity this year to leapfrog their competition in terms of innovation and grab some headlines as pioneers in open banking and payments.

In February, Visa Inc. rolled out Visa Developer, an open platform that allows application developers to access the company’s payments technology, products, and services via a comprehensive set of APIs including account holder identification, peer-to-peer payments, currency conversion, and transaction alerts.

Last month, banking giant Capital One rolled out its Capital One DevExchange, acclaimed by the press at the first true open banking platform in the U.S. Among the capabilities available in the current beta, a two-factor authentication service, rewards API, and credit pre-qualification lend themselves to a range of new use cases for partners and third parties.

Getting started with API management in banking

Thanks to APIs and API management, we have seen, in two short years, farsighted ideas about digital banking transformation turn into commercial reality for many financial institutions.

Accelerate your own strategy by learning more about how APIs can jumpstart banking innovation in this featured analyst report, APIs Turn Disruptions into Business Opportunities.


David Chiu is a Senior Principal for product marketing at CA Technologies, specializing in API…

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