July 14, 2015
As fintech startups continue to disrupt traditional financial services, banks are waking up to the fact that offering an open API, where developers can latch on and create very specific customized app solutions, is the way in future to engage and retain their customers. Banks and other financial institutions are sharing codes through application programming interfaces, of software gateways that allow applications to work together. APIs are a banks’ tool for survival and relevance in a smartphone-first world. So making it open to outsiders is pretty much like inviting the competition to come in and read the insider’s note. However industry watchers say that offering an open API is not a deterrent. Instead it lets fresh-off-the-boat tech companies and ever competitive developers innovate much faster on the built platform, as opposed to keeping their app development limited to compliance-inhibited, resource-strapped IT organisations.
Among large US banks that have been making bits and pieces of their internally developed software available to outsiders are Citigroup, BBVA Compass, Bank of America and Capital one. Other bigger names who have done this before are Google, which makes its Maps API available, PayPal which makes its payment API available and FedEx which offers it location and tracking APIs to others. The idea to do this is to move more transactions or users through their systems.
For banks and financial institutions, finding innovation is a key to offer this new openness. By sharing APIs, sometimes even through hackathons, where outside developers are given software tools for an approved amount of time, the idea is to build new apps, through fresh perspective, ideas that can be generated and implemented. In Citi’ case, offering APIs was a progression of the bank’s efforts to use APIs internally to integrate systems and channels. The Citi Mobile Challenge gave access to fintech startups and other companies to build something on and with Citi, leading to integration with the organisation.
Another example is BBVA Compass which made a set of its authentication and payment APIs available to Dwolla, the payment network provider. The two companies worked to develop a way to authenticate customers and tokenize their credentials, so that no personally identifiable information was passed to Dwolla, inspite of it being able to link to BBVA accounts and move money in real time. The aim was, according to BBVA representatives, to bypass the traditional ACH model. By the time a customer’s deposit is verified and the money is transferred, a couple of days are lost. The bank wanted to accomplish this transfer in real-time, through integration with Dwolla.
Specific customisation is another reason to open APIs, so as to let tech-savvy customers create their own defined services. Silicon Valley Bank, which caters to some of the largest US tech companies, lets it clients access its products through tools using OFX standard (OFX, or Open Financial Exchange, is a unified specification for the electronic exchange of financial data among financial institutions, businesses and consumers via the Internet.) This, say bank’s digital strategy representatives, will go a long way in future digital transformations and how the bank will engage with its customers.
APIS are changing the way companies engage with each other. It lets them take advantage of their core service strengths, provides a model for innovation and integrates customers through inventive and customised measures. A bank offering an open API will help a fintech startup come up with new payment products. The idea is to take a step forward, together and always stay relevant in the ever-evolving digital world.