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Bill Gates was once quoted saying “the internet is becoming the town square for the global village of tomorrow”. These days the global village has firmly been established and the meagre town square has been usurped by an e-commerce marketplace so vast that it now fuels the majority of global GDP.
The modern connected world is the “smallest” it has ever been and the internet has without doubt been the biggest catalyst, driving global innovation, opportunity and collaboration like never before.
Now imagine a bank as the world, its systems the countries and its customers the population. If a piece of technology came along that made it exponentially simpler to connect all the disparate countries and population, would a world not embrace this just as we embraced the internet?
If you also consider that some of the largest banks are still reliant on systems that quite possibly pre-date the internet, the question of adopting this technology should be an easy one for the city boardrooms.
Enter the application programming interface or API, the enabling technology currently revolutionising the world of finance. Open or publicly accessible API’s more specifically refer to those which are open to third party developers. They are seen as the enabler for future banking innovation, providing a way of interacting with core banking platforms and services, which can provide a well needed boost to a banking industry lagging behind in its use of customer data. While this represents a huge threat to existing banks, if applied in the right way it could also represent a significant opportunity for those willing to embrace change on behalf of their customers.
The consumer deserves more
Those of you that work in the industry and have been on this journey of open access data for a while will understand that the key drivers behind the application of this technology in financial services are not a question of profit and market dominance by huge corporates. This is about the average consumer!
The competition and markets authority (CMA) have recently mandated the use of Open API technology by the nine largest UK banks, to connect consumers with their data and empower them to use it to their benefit, all by 2018. This is intended to ensure that consumers are clear about what their bank has to offer and subsequently to ensure they are matched with the most appropriate product for them.
Thanks to schemes like the current account switching service and price comparison websites, many consumers are now more aware of the choices they have when selecting financial products. However for products such as applying for mortgages the process is still an onerous succession of meetings, phone calls and manual verifications, and for price comparison websites shopping around for products can often result in a decline once a full application is made. Not a great customer journey by modern standards.
Open APIs will give the consumer the ability to easily govern the personal data used within these processes, along with empowering them to share it with trusted third parties whose aim is to help consumers with better financial management. Price comparison websites for example could quite quickly be replaced by product matching websites with pre-approved “1-click credit” options.
Believe it or not, online banking is now over 33 years old and the core service has changed very little – it gives you the ability to view your spending and initiate payments. Open API’s move online banking forward into the world that Bill Gates talked about; the modern connected world where data and money are exchanged at the customers will to help support their financial wants and needs. Banks that resist the 2018 deadline risk falling behind the competition and the rising fintech revolution, being subject to fines and legal action by the CMA, but most importantly they risk one of the biggest assets they have, their reputations with their customers.
Connecting the dots
We’ve now reached a pivotal moment where the stage is set but the work has only just begun. The looming deadlines associated with Payments Services Directive 2 and the CMA’s mandates are helping to push the agenda and recent discussions around the security and governance standards are all heading in the right direction. But progress relies heavily on everyone moving in the right direction, which is ultimately the direction of the consumer.
The financial services industry has protected customer data for hundreds of years and as we move into an era where the customer is being put back in control, the right balance needs to be found to maintain this level of protection without stunting innovation. Consumers must be educated on the benefits of managing their own data. There is no doubt that the technological ingredients are in place to deliver something revolutionary; as other industries have demonstrated, connecting the dots is the final challenge.