Open Access to payment accounts (XS2A) must be ensured by an open standardized way which means APIs in practice – says the PSD2 Directive. With regard to business opportunities this is the most promising requirement even more a driver in PSD2 FinTechGroup experts believe.
APIs have been available in the banking sector for about 10 years. We also find payment applications or solutions development platforms opened to developers in the banking sector for several years. Payment APIs have grown by almost 2 000% since 2009, with financial APIs growing at more than 470% during that time.(source:http://banknxt.com/55745/uk-open-banking-api-framework/)
Why is this topic so hot today then?
Banks need to adapt to technological changes and need to be more focused on cost effectiveness. APIs drive cost-effectiveness and speed up everyday operation, therefore are a key factor to business profitability.
Also, using APIs not only shortens the time-to-market period but makes easier to develop new digital financial services to customers. With APIs the entry barrier to develop new services has essentially decreased so one can see that the scope of services available has already been increased many times over. This is also great news, since more life situations could be supported with digital finance solutions, more consumers find solutions to their needs.
But these are not the main reasons, why experts talk about it mostly.
The biggest challenge for new entrants is how to build a valuable customer base. One necessary success factor to it is to provide real value propositions to a pain-point. Which requires to have proper data and data analytics competence. With API based access comprehensive, relevant data is becoming availabe and – since it will be in a standardized format – on an effectively processable, analyzable way.
Increasing the number of valuable customers or to reach new segments is not only a challenge for banks but very costly. With the API-based XS2A requirement accessing to useful, relevant and valid information makes them easier and cheaper to build new service propositions to their competitors’ users which could support widening their own customers base.
So, the main reason why APIs have become hot topic – FinTechGroup believes – that open access to payment accounts – which could mean access to payment, savings, credit data – via open, standardized APIs opens an effective, simple, secured, free of charge way for the new entrants and also for the banks (altogether we call them TPPs) to reach new customers, to widen their consumer base and by doing so, find additional revenue sources, revenue streams.
How the API regulatory and market environment will be shaped? What is the procedure in practice?
On the basis of PSD2 a “regtech” body, the Open Data Implementation Entity within Open Banking Working Group was set up in the near past with the responsibility to ensure professional, transparent market of standardized APIs.
We, at FinTechGroup closely analyzed the kick-off paper of the Entity. Well, we believe, that this Entity will have huge impact on range of the digital financial services and besides will also greatly influence the customer experience the individual services might have.
Their mission says that they will build an open developer community and work together with the developers and the market when they frame the rules. They want open, network-based solutions. – That is great, since the developers, the banks, the professionals will be able to support a market-friendly, innovation-friendly and service oriented regulations.
Let’s see what their work is related to API standards:
1. Set the framework for easy, quick access to proper APIs to ease being PSD2 and market compliant:
- Register the API developers and build and keep a public and updated “Approved API Developers” list
- Work out a detailed SDK, references
2. As an indepent “authority-type” body will set the liability rules for datasharing, data-usage, data access
- Data categories, access rules, security
- TPPs registration process and updated public register
APIs are the tools to securely, effectively access to data and a means to further utilize it. We haven’t talked about the data yet. What do we now about the data, what are to be accessed with what rights? This question drives us to data standards which are at least as important – FinTechGroup believes – as the technical solution of accessing them. OBWG works very closely together with the Open Data Institute (ODI) on those questions. This cooperation will ensure that the regulation and the regulatory standards will be harmonized and whenever they are entered, they will support competition, innovation meanwhile be very careful towards data security.
FinTechGroup: “Creating a Brave New Financial World!”