Stanislav Bags — CEO of Umbrella IT
What are the benefits of open API opens the players of the financial market? Digital business transformation has become a reality. The Finance market in this sense is no exception. Financial institutions are rapidly embracing the digital space, aligning IT and business strategy, working on the introduction of new products and services and bring products and services to market (time to market).
An additional driver for traditional players becomes the high activity of representatives tehina (technology companies, along with other services to offer new and improved ways of providing financial products, such as Google, Amazon, Facebook and Apple (GAFA), Alibaba. Latest insistently offer users financial services and set the bar high seamless user experience, where banks and other institutions need to meet in order not to lose customers.
Open Banking on a global scale
Open API as the development trend of the financial market has attracted special attention in connection with the introduction of PSD2 in Europe. The Directive requires banks to provide information through the API certified external providers of financial services (of course, with the consent of the clients) and aims to develop non-discriminatory competition in the field of financial data users. Initiatives related to open API, I propose and implement in other countries: UK, Australia, USA, Singapore.
The Russian market does not remain aloof. Established FINTECH Association that unites the largest banks in the country. One of the challenges facing the Association: the development of open API to “create a competitive, high-quality and cost-effective financial services market”.
Open API’s and banks
In order not to lose their client base and take a leading position in the digital market in the face of such increasing competition, banks need:
to expand the range of products and functionality, including by building partnerships;
to reduce costs and accelerate time to market, working to stay ahead of competitors;
to provide safe and convenient customer experience through high quality products and services.
Open API work in these areas and give a positive result.
The first and obvious advantage of open API follows from the very definition: they are designed for easy integration of Bank partners with its services and for the integration of Bank services among themselves. For traditional organizations, rapid integration with FINTECH companies opens new channels of interaction with the client, new markets and services. Recent competitors become allies and play in the same team. What’s happening is reflected even in the terminology: increasingly, the attitude of banks and Finance describe the term frenemies (derived from the words: friends + enemies) and coopetition (cooperation + competition).
We give a simple case to illustrate such a mutually beneficial collaboration, which is possible thanks to the open API.
Some web site offers users the opportunity to compare banking and insurance services from different suppliers. Through an open API banks, insurance companies and the site will connect the systems to each other and to obtain information about the products they offer their customers. Then the site will regularly collect data on banking products, using the API of the connected banks. This information will be stored in the database of the site. When the user go to the site, for example, to find a Bank that offers the most favorable terms on the loan, the site will show the information he needs. Compare available offers, the user will decide in which Bank to turn to. And with this platform he will be able to send the loan application to the selected Bank. Open API in this case is beneficial to all:
the user does not need to spend extra time and effort to find the best offer and contact the selected vendor;
for the platform simplifies the process of posting and updating the data Bank on the website;
financial institutions are connected to the platform for advertising purposes and are in possession of another channel of communication with customers.
The modern consumer/the customer uses with the financial products and services:
easier and more convenient;
provide a new and useful experience.
He does not matter, what is inside and how it works the whole mechanism. For Bank customers open API means more choice of financial services and products. In the end, they will choose the Bank that they are such a choice offers. To open API has become so for more effective communication channel with customers, the Bank needs to lay the issues of flexibility, scalability, security in the basic structure of the system. The Bank depends on how the quality of services will meet basic expectations and requirements of the clients.
In such a competitive struggle for the loyalty of clients by traditional financial institutions can face a daunting task. Many banks already have a working system which have a monolithic structure and a large base of legacy code. What’s the downside of this heritage? Missing encapsulation levels, the products are rigidly attached to the used technologies and their versions, it is impossible to reuse the business logic separately from the components. All together this increases the cost of developing new products and slows down their entry into the market and attract third-party developers for the creation or upgrading of a product is labor-intensive and time-consuming procedure.
Speaking about the collaboration with partners, an effective remedy even in such a situation will be to develop the SDK. It performs the role of a tool which hides the implementation details of the system and greatly simplifies the task of integrating the Bank with external partners. Choosing among equal-status banks, playgrounds-partners would prefer someone easier to integrate. Not the last role in it plays correctly included into the SDK documentation: the more and clearer documentation, the higher the chance that the new product/service will appear on the market faster than the competition.
Under this Umbrella IT is recommended to enable the entire business logic of the product in the SDK and to avoid adding to the UI components. UI components are responsible only for displaying. At the same time, SDK-layer will be responsible only for business logic and interaction with server. Accordingly, there is an additional advantage: the business logic can be reused independently of the components. An added bonus will be that estimate the complexity and time of creating new products based on the SDK easier and faster. This means simplification of planning and starting new projects, which are so necessary to keep ahead of the competitors.
The flip side of public API
Open API for traditional banks is a new phenomenon. Like any coin, have a open banking has two sides; first, not all banks were pleased with the opening term, despite the advantages.
First, opening APIs, the Bank in one degree or another gives you access to their system, therefore, even more questions arise of information security.
Second, choosing a partner, the Bank needs to take into account that he will communicate with customers face to face and it is the quality of its services will depend on the opinion of the client about the Bank or credit institution.
Thirdly, the success and effectiveness of the introduction of open banking largely depends on the standards and rules that will govern the relationship of market participants.
However, the fact remains that the trend is developing and is supported, in some countries, to a greater extent, some to a lesser. In this situation, those market participants and regulators, which will act in the role of pursuer have an advantage: they can consider the mistakes that were already made, and leverage the opportunities.
Things to remember about an open API?
Open API is a tool for qualitative changes in the financial services market.
Open API allows banks to accelerate and move to a new level of competitiveness.
Open API is a channel for information transfer but not a separate product.
Open API is a tool whose effectiveness depends on the quality and security of the underlying system.
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