The Magic of Open APIs

As European banks can't stop talking about open APIs, further discussion over the matter throws light on opportunities open APIs have in store for the banking industry, businesses and customers. Open APIs are at the core of open banking, which comes with enabled access to data for all relevant participants of the market. While the access to one’s own banking data will enable consumers to make better choices of financial products and ensure the best available terms for the relatively young startup community, it will enable the opportunity to build better products and services.

But most importantly, for financial institutions, opening banking data will allow banks to make their interactions with customers smoother and simpler will help them to find efficiencies, improve customer service and deepen their customer base.

As the Competition and Markets Authority states in the report on retail banking published this Tuesday, APIs make life simpler for millions of us every day by enabling us to share information, for example, about our location. They are the hidden technological drivers behind digital applications such as Facebook, Google Maps and Uber.

As a government among the most active in fostering innovative approach in banking – and in open banking standard in particular – the UK’s authorities believe that open APIs can transform the financial services sector with wide adoption, significantly accelerating the pace of development and introduction of new products using existing digital technology.

As the authorities believe, the development and implementation of an open API standard for banking will permit authorized intermediaries to access information about bank services, prices and service quality and customer usage. This will enable new services to be delivered that are tailored to customers’ specific needs.

What types of services can be improved with open APIs?

Data source: Competition and Markets Authority

Although open APIs can improve the quality of financial services and boost the customer satisfaction, there is an ever-standing concern over privacy and security, which comes with data shared across third parties. In the most optimistic approach (which European governments seem to be standing at), APIs can give customers the power to decide what data and with whom they want to share after making sure the right safeguards are in place. Although, the question of sufficient customer literacy and the ability to go through the fine print before enabling a particular third party is still in place.

Can banks be digging their own grave with open APIs?

In looking at the hidden rocks of open APIs' approach, we previously came across an interesting analogy explaining the risks customer undertake by providing access to their banking data to wonderfully convenient financial technology platforms brought up by the Lucerne University of Applied Sciences and Arts.

If you as a client pass on your personal access data in this manner, this is similar to you booking your holidays at a travel agency and then simply logging on the travel agent into your e-banking account and then leaving the shop—blindly trusting that the travel agent will now actually only debit the amount owed by you from your account, and will then log out again straight away. Any nosy employee might as well just have a look at how much salary you are paid, and if they have malicious intentions, they could even try to finance their own holidays from your account.

In addition to the risk of impersonation, the university also mentions a possible loss of control over banking data. In cases when large amounts of data access in one jurisdiction are processed in a different country with different regulatory and security environments, customers are risking to have little to no control over what is happening with their personal information collected by those platforms.

As a possible remedy for mentioned risks, the UK’s authority believes that the access to private information for third parties should be enabled in stages with the least sensitive information (banks’ prices, terms and conditions and branch location, etc.) made available first (by March 2017) and all aspects of an open banking standard up and running in early 2018.

Moreover, banks should be required to publish core indicators of service quality based on customers’ willingness to recommend their bank to friends, family or colleagues. Banks will also be required to collect and publish a wider range of additional quality measures, which they will make available through open APIs so that intermediaries can use them in new kinds of advisory and comparison services. A lot of requirements coming to banks’ way with open banking standard, isn't there?

In addition to requirements to publish a whole lot of information to ensure consumers give a thought to changing their financial services provider, the situation may take a rough turn with requirements for banks to even remind their clients and encourage them to occasionally review their banking arrangements. Long story short, to be fair to customers, banks would have to encourage them to review options.