Open API: a concept essential for the prosperity of the financial sector
George Osbourne’s ambitions for the financial sector have the potential to revolutionise the attitude of the UK financial industry. Innovative solutions have caught the eye of the political parties, with Osbourne announcing proposals for banks to open their Application Programming Interfaces (APIs) to boost competition within the industry.
How do open APIs impact the financial sector?
APIs – created by salesforce in 2000 – allow for the communication between two software systems. If open APIs are utilised, the government has ambitions to revitalise the sector by allowing smaller FinTech firms the opportunity to share data with more established institutions, increasing competition within the industry. The newcomers could create new services based on these open APIs that satisfy customer needs. If given the opportunity to sync up with banking technology, innovative tech start-ups could develop apps that support customers with their banking – such as services that allow them to budget for their weekly shop – and keep track of their finances by seeing how their spending fluctuates according to their bank account data.
What are the benefits for the institutions adopting this new approach?
The concept of collaboration within such a competitive market may strike fear in the minds of many bankers. But banks do not have to see themselves as in direct competition with FinTech players – there are also benefits from the bankers’ perspective. The ability to adopt and incorporate technology from FinTech firms when it is needed will allow for banks to simplify the process of adding new services by piecing together building blocks of services.
So how would this work in practice?
The introduction of open APIs could in reality face barriers due to the underlying legacy issues of archaic IT architecture that banks have built up over the years. By simply opening up APIs without concentrating on addressing the core banking issue, IT professionals are brushing the issues under the carpet and attempting to mask the real problem. The first step is for IT teams to evaluate their core business functions. This clarification process could be supported by banks joining forces with one another and IT software providers to define industry wide standards within banking IT, reducing the expenditure that businesses face with IT infrastructure complexity and integration costs. A service orientated architecture (SOA) would help IT professionals untangle the mess of their existing infrastructure and identify which services fit into the building blocks of predefined business services.
The open API proposal that the government declared earlier this year has highlighted an opportunity for banks to innovate in an unexpected way: through collaboration. However for this to be effective, the government will themselves need to cooperate and gain insights from banking industry experts to ensure that the proposal is able to progress into a reality.
Content supplied by Hans Tesselaar, Executive Director, Banking Industry Architecture Network (BIAN)