Application programming interfaces (APIs) are a vital innovation able to transform treasury banking – making financial institutions more agile, innovative and highly experiential to support their clients’ needs, writes BNY Mellon’s Sindhu Vadakath, Head of Global Digital Channels and Asia Payments Product Management.
From real-time payments to account authentication and real-time payment exception handling, digital services have become a prominent part of financial institutions’ (FIs) offerings to treasury customers. Clients are increasingly looking for fast and frictionless experiences throughout the transaction life cycle – including pre-processing, during processing and post-processing. Application programming interfaces (APIs) are providing valuable real-time experiences that help address these needs.
APIs enable streamlined, efficient communication and integration between software components. By using APIs, FIs can offer greater speed and efficiency, and, by harnessing process automation, can provide instantaneous transactional data and actionable insights; as well as real-time visibility over payments, statuses and transactional balances for efficient cash management.
The increasing potential of APIs has been fueling industry innovation, disruption and connectivity, and many FIs have already integrated APIs into their operations. Now, with the ecosystem being driven towards greater levels of harmonisation – through initiatives such as the global migration to the ISO 20022 messaging standard – APIs are beginning to shape the future of banking.
Achieving business goals
APIs can connect the digital ecosystem while bringing numerous back-end and client-facing benefits. A critical advantage of APIs is the ability to integrate real-time balances and transactional data across multiple channels, including Treasury Management Systems (TMS) and Enterprise Resource Planning (ERP). For example, through BNY Mellon’s Treasury Payments API, clients can integrate FIs’ solutions within their own internal systems. Clients can seamlessly perform business operations by automating payment processes, as well as streamline necessary treasury operational tasks such as reconciliation and reporting. Clients can also leverage the technology to securely access global payment capabilities through a single endpoint, enabling them to initiate payments and track the status of transactions end-to-end.
APIs can connect the digital ecosystem while bringing numerous back-end and client-facing benefits.
Through such solutions, clients can enjoy the time and resource saving benefits of real-time data sharing, especially through the pre- and post-transaction processing lifecycles. The automation and streamlining of operational processes allow clients to redirect their resources to more value-generating functions, such as forecasting analysis, customized reporting and transaction capabilities.
Return on investment
After several years of investment in APIs to deliver integration solutions, FIs are already seeing a strong return. Benefits include retaining clients through improved client satisfaction and resiliency, as well as unlocking legacy data and eliminating manual processing.
And APIs now play an important role in business continuity plans (BCPs). The importance of having an established plan to offset against the impact of unexpected events has been confirmed by the COVID-19 pandemic. In the case of a disruption or network outage, FIs are using APIs to seamlessly switch to a digital, active-active alternate channel to process their payments – traditionally, a resource-heavy process between FIs and network providers to ensure timely execution without any financial implications. By integrating APIs into their networks, FIs can smoothly transition to their back-up plans during such exigencies.
For banks such as BNY Mellon, integrating APIs with their clients’ operations is a way of offering value-driven, tailor-made solutions to support business agility and innovation for clients. As opposed to a one-size fits all approach where offering a standard product isn’t the goal, APIs provide a solution-based target where the client can be kept at the center, and their unique needs – whether that be authentication, validation services, exception handling, or real-time access to data and reporting on payments and account activity to take timely actions – can be solved through APIs and other digital capabilities.
Looking to the future
While the finance industry is learning to leverage API technology, the size and complexity of the solution required can sometimes impede the success of delivery. For example, an API might need to work for multiple parties across various jurisdictions that are each bound by regulations in their domestic markets. As a result, a number of consortiums, formed by both fintech and financial firms, are working on ways to resolve these issues.
[ymal]
In fact, FIs are responding through collaboration and partnerships – with each other, with fintechs, and with industry networks and participants, such as SWIFT. Where FIs focus on upgrading legacy systems and data architecture, they see opportunities to partner with fintechs to accelerate the process. Meanwhile, FIs can offer fintechs with real world client use cases, problem statements and the ability to deliver their innovations across a range of situations and sectors, leveraging each other’s expertise to address industry needs to stay relevant.
One of the biggest challenges for adoption is the difficulty in maintaining multiple variations of the message specifications by channels, currency and markets. However, the way to overcome this challenge is through increased standardisation, and the upcoming migration to ISO 20022 could reduce a lot of these frictions, by improving cross-border interoperability and streamlining the exchange of data for APIs. It is going to be a journey towards harmonisation that requires the industry to come together to chart the path towards the digital future.
As FIs continue to invest in new technologies and further leverage the benefits of APIs, they move closer to not only achieving their strategic business goals, but also enabling their clients’ own digital transformation goals. Banks and other FIs have the responsibility to continue to explore agile, innovative and integrated API solutions, ensuring that clients can benefit from the host of opportunities APIs will bring as they shape the future of the industry.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
Andria Evripidou, Policy Lead at Yapily, shares her thoughts with Finance Monthly on the state of finance in Europe and its opportunities for improvement.
Fragmentation has been one of the biggest obstacles to growth in the European Open Banking ecosystem to date. Even within the Berlin Group, there are differences in how banks communicate with technology companies and how they connect with APIs.
Because of this disparity, Europe has been slower to adopt Open Banking than the UK and other countries around the world. There were 178 firms in the UK permitted to share bank account and payment information with third party providers (TPPs) in 2020, but only 36 in Germany, 18 in France, 9 in Spain and 6 in Italy.
There is a real opportunity here to consolidate the market and deliver more value-add financial services with the promise of Open Finance. Promoting innovation and creating a level playing field for all payments and data companies, while giving consumers greater visibility over their data and enhancing their financial wellbeing.
Open Banking is the first mile in the Open Finance marathon, and Europe’s regulators are starting to make their next moves towards crossing the finish line.
Catch me if EU can
There are a number of different factors that have contributed towards the fragmented Open Banking landscape we see across Europe today. In some countries, like the Netherlands, consumers have deep-rooted trust in their banks but a distrust in cards. As such, iDeal, an eCommerce payment system initiative driven by Dutch banks, was quickly adopted when it launched in 2005.
In comparison, the level of enforcement by National Competent Authorities (NCAs) of PSD2 requirements was patchy in places. Which in turn created a fragmented approach to PSD2’s implementation across central Europe. And so led to mixed uptake in adoption.
There is a real opportunity here to consolidate the market and deliver more value-add financial services with the promise of Open Finance.
How developed a country’s financial ecosystem is has also played a role in Open Banking adoption. Eastern European countries, for example, that have more outdated financial products and infrastructure have been more receptive to innovation than countries with more advanced financial systems that already meet consumer needs.
The ingredients for Open Banking success
The maturity of the market is intrinsically linked to the adoption rate – adding another layer of complexity to the landscape. Those in the industry know and can see the potential of Open Banking and Open Finance. But wider consumers and businesses are still in need of educating on its benefits and security.
There are active discussions and working groups on how to move Open Banking adoption forward. To address the issue and catch up with the UK and other countries like Australia, the European Banking Authority (EBA) recently published its views on what NCAs should do to further adoption across the region. The aim was to ensure they remove any remaining obstacles that could prevent TPPs from accessing payment accounts or which restrict EU consumers’ choice of payment services.
This move has been well received. It is likely that, going forward, Open Banking integration within Member States will become easier. Over time, this move should make payments via Open Banking more prominent within the mainstream.
An open future for Open Finance
The natural evolution of Open Banking is Open Finance, which has the potential to completely change the way we look at our financial lives and bring about the fourth industrial revolution. Use cases are boundless, and the primary objective is enabling people to properly understand and then ‘optimise’ their overall financial position, ultimately leading to greater financial inclusion for all.
[ymal]
In an Open Finance era, consumers can get a better understanding of their investments using financial management applications that have a holistic view of an individual or business’ financial position in real-time. This will give consumers the ability to consider whether investments continue to meet their needs with access to up-to-date information on costs, tax treatment, performance, risk and other necessary factors.
The same consumer-centric approach that will see the rise of Open Banking across Europe will lay the road for Open Finance.
We have a lot to learn from the Open Banking experience to date to ensure the success of Open Finance. We also know that whichever shape the legislative framework ends up taking, Open Finance needs to be secure and easy to use, and that user journeys need to be properly considered ahead of any legislation design.
A lot more needs to be harmonised compared to the Open Banking experience. And without adequate supervision by NCAs, the implementation of directives is likely to be patchy and may hinder the uptake of Open Finance. But there’s no doubt that we will see the European Open Banking system consolidated in the coming years, giving way to the rise of Open Finance.
The ultra-low interest rate environment and fee compression in areas like payments continue. Competition from challengers and fintechs is intensifying. Customer digital adoption has grown, and the bar of expectation continues to rise.
The impediments to change that traditional banks face are not going away - high cost-bases, inflexible and complex legacy technology estates, and operating models that lack customer-focus and agility.
Banks face the imperatives of increasing and diversifying revenues, optimising costs and increasing business agility. In this article, Simon Hull, Head of Financial Services at BJSS, looks at the revenue challenge and why smart use of digital technology is the key to success.
Revenue drivers
Banks are looking to win new customers, retain and maximise business from existing customers and diversify the traditional deposit and lending business with fee-based products and services. Some of the key elements banks are focusing on in this respect are customer experience, customer intelligence, and product and service range.
Customer experience is a battleground and competition is intense. Last year's Ipsos Mori poll has Monzo and Starling coming out ahead on many customer service metrics. Digital channels are becoming primary. Customers are attracted to slick and intuitive digital experiences and expect increasingly personalised service as banks learn more about them.
However, the empathetic human touch is still essential, as is the consistency of service across in-person, phone and digital channels. Customers want the choice of channels to use for different tasks, and preferences differ across demographics. The brand experience is just as significant, with social and environmental responsibility top of the list. The combination of service and brand will drive loyalty and recommendations.
Customers want the choice of channels to use for different tasks, and preferences differ across demographics.
Customer intelligence is about gaining a deep, holistic and continuous understanding of the customer - their needs, behaviours, preferences and influences. With this, a truly customer-centric operating model can be created - one where product and service development, marketing, distribution, and customer service are aligned and evolve alongside the customer. This enables a broadening of the relationship to maximise customer wallet share by tailoring to their needs to build multi-product relationships.
Banks need to assess their current product and service range, consider discontinuing low volume or low profitability products, and ensure the rest are available on their digital channels. In parallel, banks must move to an agile product and service development model to enable rapid innovation based on customer intelligence. This will help sustain and protect revenues as needs change and diversify into fee-based products, as many major banks are doing in areas such as financial advice, wealth management, insurance, point-of-sale financing and subscription models.
Digital technology solutions
Digital technologies, used in the right way, hold the key to delivering these three revenue drivers.
Investing in user-centric design is critical for banks to understand customer needs, jobs to be done and interaction preferences. Web and mobile digital technologies power responsive and real-time banking apps, compelling user journeys and more frequent interactions and alerts. They are also a critical source of customer data which can be used to refine interactions and develop new products and services iteratively. Banks should move their full product and service range onto their digital channels, and also focus on customer education and self-service. The same technology can be used to digitally enable branch and call-centre staff, creating more informed and rich customer interactions.
Data and AI is really the heart of digital customer-facing banking. Capturing and combining datasets involves both making the vast troves of data stuck in siloed legacy systems available, capturing real-time customer data from digital platforms and also bringing in additional third-party sources. AI can be used to join the dots and identify patterns to better understand and predict needs, which can drive timely interactions and personalised products and services. It also enables a better understanding of personal situation and risk, prerequisites for new services such as wealth management and insurance. Broadening the model of the customer extends the opportunity to establish multi-product relationships. This generates more interactions and data, so a cycle of continual analysis and innovation is formed.
[ymal]
AI capabilities can also be combined with RPA to enable Intelligent Automation of many customer service tasks such as standard enquiries that can be handled by conversational AI. Highly responsive, accurate and information-rich conversational interfaces improve the customer experience. This in turn, enables staff to provide a better customer service by focussing on personal service and higher value or more complex needs.
Cloud is a crucial enabler of much of the above in several ways. The inherent agility of cloud-based services enables rapid innovation and the delivery of new services and features through microservices. Elastic scalability enables the platform to adapt to usage expansion and maintain responsiveness under high load. Native out-of-the-box data and analytics capabilities will accelerate the AI journey. The fast provisioning of new environments supports an agile product development methodology.
For traditional banks, legacy modernisation must feature in the digital change programme. Legacy systems can negatively impact the speed and cost of change. Modernisation must be prioritised, and iterative strategies applied such as facading systems behind APIs, breaking out elements of monoliths as standalone reusable services and cloud migration. Legacy systems contain critical data that is needed to build a holistic customer view. Modernisation of the change function to a customer-centric agile model is a broad enabler for all revenue-generating activity.
Conclusion
The industry is at an inflection point, and banks face a considerable challenge to drive revenue opportunities. The key to success is precision of focus on business goals and aligning the right digital technology combinations to deliver on the customer experience, customer intelligence and rapid product and service innovation goals. Banks are at different stages on this journey, and of course, revenue must also come with profitability. Hence, costs are another challenge that must be faced in a similar way.
Kris Sharma, Finance Sector Lead at Canonical - the publisher of Ubuntu - offers Finance Monthly his thoughts on APIs and how firms are already using them to enhance their services.
Cloud computing, big data analytics, artificial intelligence (AI), machine learning (ML), distributed ledger technology and process robotics are all playing a key role in reimagining financial services for a digital world. A growing number of financial institutions are drawing plans to adopt these technologies at scale as part of their digital transformation initiatives to accelerate financial data processing, deliver mass personalisation and increase operational efficiencies.
Most organisations currently deploy a complicated mix of technologies, legacy software platforms, applications, and processes to serve customers and business partners. On their digital journey, financial firms will have to integrate data, processes and business functionality from legacy systems of record to this set of new technologies. Many businesses have tried to adopt various transformation approaches such as re-platforming and re-hosting, direct integration between applications, rip and replace, and deploying middleware technology to deal with legacy systems and their integration with new technologies. But each of these approaches have their own drawbacks and can limit the adoption of new solutions within the constraints of legacy technology debt.
An evolutionary approach to digital finance, however, will unify information and data without the need to merge operational systems. Application programming interfaces, or APIs, can overcome the challenges involved with adopting new technologies and more innovative solutions while integrating with legacy run-the-business applications.
Where APIs become a core piece of the puzzle
APIs are increasingly playing a central role in digital finance. They essentially bind different parts of the financial value chain together, even though the underlying components may be based on different systems, technology, or supplied by different vendors. Using APIs, financial firms can securely share digital assets while masking backend complexity, integrating software applications and focusing on maximising their proprietary strengths by sharing data, systems, and functionality with customers, partners and developers. This in turn drives digital transformation without a complete overhaul of existing infrastructure.
Application programming interfaces, or APIs, can overcome the challenges involved with adopting new technologies and more innovative solutions while integrating with legacy run-the-business applications.
Since APIs are self-contained, they can be readily deployed and leveraged for innovation at speed, enabling financial institutions to introduce and integrate new features. When powered by the cloud, firms can develop, test and launch new services to customers quickly and cost-effectively, fuelling business growth. For example, insurance firms can make more timely offers by cross-selling home, auto and life policies. Financial institutions can leverage APIs to connect sources and use cloud computing to handle massive amounts of data, as well as AI and ML services live in the cloud, thereby analysing all this data faster and cheaper than they can on-premises.
Who is successfully using APIs?
Challenger bank Starling was designed and built completely on AWS cloud to deliver and scale infrastructure on demand. Additionally, by building a bank with open APIs from day one, Starling is natively compliant with the European Union’s Payment Services Directive (PSD2) directive.
According to ProgrammableWeb research, financial services is ranked highly in the fastest growing API categories, given the rise in digital forms of payment, an ever-increasing customer demand for connected solutions, and open banking initiatives. APIs are at the heart of the PSD2, the UK’s open banking mandate, as well as the Bank of Japan and the Monetary Authority of Singapore’s open banking initiatives.
Finastra’s Open Banking and collaboration: State of the nation survey 2020 finds that “86% of global banks surveyed are looking to use open APIs to enable Open Banking capabilities in the next 12 months”.
As APIs attract an ecosystem of developers, a financial API provider can encourage participation to fill go-to-market gaps and extend its services and data to new markets and use cases. Barclays is fostering collaboration and generation of new ideas through secure, innovative APIs. The Barclays API exchange has built an API library that is available for use by third parties to develop and test new products. Barclays and third-party developers work together to create, develop and test new product ideas before releasing them to the regular API catalogue. Similarly, Starling Bank provides a marketplace that enables developers to build their own products and integrations using its API.
[ymal]
Unleashing the potential
There is an opportunity for financial firms to leverage the power of APIs by bringing them together with digital technologies to broaden the possibilities for innovation and expand customer experiences. Financial institutions need to reimagine APIs as product offerings that will drive business expansion and increase revenues.
The future of digital finance will be driven by organisations building digital business models, redefining their API strategies and bringing new customer propositions to life using modern web architectures, best-in-class technologies and new ecosystems.
Matt Cockayne, CCO of Yapily, outlines what embedded finance is and the role it plays in modern business.
“Embedded finance” could very easily become the next overused hype cycle. Another phrase that gets bandied about, over-hyped by the press and industry talking heads alike, but that ultimately fails to meet the weighted expectations placed on it.
Embedded finance is already happening. And what’s more, it will only continue to improve the experience for both consumers and businesses across multiple industries, not to mention keep the fintech ecosystem growing in the coming years. As with any new concept, however, there are a number of misconceptions surrounding embedded finance - what it is, what it isn’t and the role it will play in the coming years.
What embedded finance is, and isn’t
A decade ago, financial services was an industry in and of itself, along with the likes of education, commerce and healthcare. Fast forward to 2020, and financial services is the ultimate enabler - one that touches almost every single industry as they look to incorporate financial products and services into their native offerings.
More and more we’re seeing non-banking players launch their own financial services to open up new revenue lines and improve customer experience. Apple launched a credit card. Amazon offers loans to merchants who have “stalls” with them online. It’s this native integration of financial services into any non-traditionally financial app or service offering that characterises embedded finance.
Embedded finance in action today
As such, embedded finance can take on myriad forms. The simplest would be your local take-away or pub enabling you to order and pay for your favourite Chinese or tipple online from the comfort of your home. Something many in fact did during lockdown. But it can also go much further. Tesla, for example, offers its own car insurance to would-be EV owners during the sales process itself.
Sticking with insurance, gig-economy workers, like Uber drivers, often need extra insurance beyond their standard cover for when they’re actively working for specific companies. To help bridge that gap, Uber and other companies now provide various levels of cover to the temporary workers they employ. As we see even greater uptake of gig work post Covid, this type of service will only grow.
[ymal]
Never mind the buzzwords
This is all well and good, though we’ve seen time and again new technologies and trends fail to meet expectations. But embedded finance is here to stay. Not simply because evolving customer expectations and a global pandemic have created the perfect petri dish for a radical reimagining of how and where the key functions of finance are delivered. There’s big money here too - the VC firm Andreessen Horowitz predicts it will increase the profitability of a customer five times over the original revenue stream.
Added to this, while Big Tech is currently leading the way, the most effective way for both banks and other fintechs to survive and emerge as winners in the coming years will be through partnerships. And the success of embedded finance is predicated on developing mutually beneficial partnerships across multiple industries.
As a lender, you can’t embed payments options for your customers online - thereby making it easier and more reliable for them to make repayments and enhancing their overall customer journey with you - without having a solid payments partner. One that has the best technical infrastructure and APIs that you can rely on to provide the quality payments service you want to give customers.
In the coming months and years we will see more partnerships emerge that facilitate embedded finance. Partnerships that will help the fintech ecosystem thrive in the coming months. Opening doors for new technologies, innovations and collaboration at the exact moment when it’s needed.
APIs allow us to make payments seamlessly, reaching the global marketplace at our fingertips, by transmitting information from one piece of software to another.
But as APIs become increasingly part of our day-to-day transactions, how can we make sure they are the best fit for the service users and that they do not fall into the trap of prioritising style over substance? Finance Monthly hears from Henry McKeon, Innovation Architect at moneycorp.
Banks, fintechs and APIs
For incumbent banks, APIs give the opportunity to expand their customer reach, by offering a more accessible range of services, along with potential partnership opportunities with fintechs. However, due to the business model of the bigger banking institution, they are inherently less agile than their fintech counterparts, meaning they often come up against barriers in the development of their API offerings.
On the other hand, we see a number of fintechs who rush to get their API service to market in order to serve their customer base – who are more likely to be tech-savvy. And while they have an agile business model that allows then to be flexible in adapting customer solutions, they don’t have the heritage and pre-built trust with the general public, along with the years of customer feedback to implement into their systems.
The customer at the core
Fundamentally, a successful API has the customer at the very core. In the first instance, it’s vital that the provider looks at the specific customer requirements and relates those needs directly to the API services. Working closely with end customers helps to provide a better understanding of customer requirements and helps to structure the API offering. In building an API offering, developers should look to engage a number of existing customers to understand their requirements and to offer the functionality that would service clients across a wide variety of industries and needs.
Fundamentally, a successful API has the customer at the very core.
Some customers need efficiency in order to operate at scale; keying payment transactions manually via a web portal doesn’t scale and is error prone. Mass payment file processing provides efficiency and reduces errors but is not always what our high-tech customers are looking for. They want open API services so that they can link their platform directly to payment and foreign exchange services, they want to drive transactions from their own platforms directly. Having the ability to access services via API instead of via files provides the ultimate flexibility.
Building a central set of API endpoints, which provide the core banking on a multi-currency wallet, global and local beneficiary validation, international payment capabilities, peer-to-peer facilities for instant transfers, and 24/7 multi bank dealing and transactional and statement capabilities is part of the core requirement which help service customer needs.
Different industries have different requirements
The diverse needs of the customer journey are put into perspective when looking at invoice factoring customers who service short term debt. They need strong banking facilities for receiving and auto-allocating incoming money. Receiving is a key part of the banking offering, so doing that quickly and across a multi-currency account is a core part of our offering. Having account tiering (Parent-Child segregation) also helps with segregating money and reconciliation.
Invoice factoring companies need efficient pay out capabilities, for paying suppliers (early) and paying back to investors at the end of the agreed term. As a result, the ability for an API to provide speed, global coverage and multi-channel capabilities are crucial. Building receiving information into the API, providing instant access to balancing and received funds, along with the referencing on incoming money therefore becomes a fundamental requirement. This allows customers to understand the source of the money, so they can do checking an allocation on their own platform.
[ymal]
Freelancing companies are another good use case for APIs. By their very nature, they are collecting and paying consultant salaries and need to be able to capture consultant bank details accurately and securely. In addition, they want to be able to validate these bank details at the point of capture, instead of at the point of payment, in order to avoid any errors or delays. Having the ability to validate local and global bank routing information at the point of entry using an API is a big advantage. Having a validation rules engine enables clients to dynamically configure the capture screens on the source freelancing system. In showing the mandatory banking fields required for each country and currency, it provides clarity on the required fields and validation of the banking details captured as part of the API offering. This functionality fundamentally helps eliminate payment failures, reduce rework and costs in the payment process.
When working with clients running freelancing sites, you’ll often find that they also require FX conversion and payment facilities which need to be embedded into the API to facilitate global pay out requirements. Local payout facilities also help reduce costs of transmission and receipt, as sending through expensive international channels is not always suitable.
This is also echoed in the requirement for shipping companies, that need to be able to pay efficiently for port calls globally. Having access to a wide range of international payments routes and currencies is essential to provide a full service. For example, at moneycorp we have partnered with Inchcape Shipping to provide Smartpay which services the world's maritime industry. Smartpay simplifies the payment process, providing efficiency and transparency and helping to centralize treasury and FX and payment services for the group.
FX providers give substance and style
In the fast-evolving world of API solutions, style is impossible to achieve without substantive attention to detail. This is even more apt in the space of foreign exchange, where achieving speed, efficiency and security can be more of a challenge due to the nature of banking across borders. In this space, to be successful, an API needs the agility of a fintech to evolve to rapidly changing consumer needs but be backed by substantive banking networks and expertise to execute payments securely and quickly across currencies, markets and time zones.
Online Banking is a global trend that banks and institutions are currently following to improve the current connections across digital services. In addition to it, Open Banking is the representation of a next-generation business model in an open data economy.
With Open APIs, banks can be easily linked to financial technology companies using affiliated services from a single dashboard using specific applications on a smartphone.
The leading jurisdictions in Open Banking include the United Kingdom (UK), Australia and the European Union (EU).
About it, LearnBonds explained: “The United Kingdom leading the way in Open Banking explains why so many UK-based challenger banks and tech startups like Revolut, Monzo, Starling and Curve are thriving in the banking sector.”
Countries such as the United States or New Zealand are considered ‘Beginners.’ These are countries and jurisdictions with small or no progress on regulation or standards.
Meanwhile, Switzerland, India or China are considered ‘Risers’ because the whole market is unregulated but they are registering Open APIs and evolving standards.
To understand which countries are currently at the forefront of Open Banking, the report takes into account four different factors that include the spread of Open APIs, regulatory requirements, standardization initiatives and the presence of a central TPP regulatory body.
The protocol is designed to make sure that during a transfer, the name of the recipient exactly matches the name on the account receiving the funds. Intended to give greater assurance when it comes to transactions, CoP helps users to avoid directing payments to the wrong account.
It was then announced in 2019 that the name checking service would be delayed until March 2020 at the earliest. But given the security implications, Chris Stephens, Head of Banking Solutions at Callsign, asks: why has the deadline been pushed back?
After a consultation with groups in the industry, The Payment Systems Regulator (PSR) deemed the expected implementation deadlines “unachievable”. However, with the personal details of consumers at risk, banks are searching for various ways to address fraud to keep their customers secure. This is especially important given that in 2018, a total of £1.20 billion was stolen from the banking industry by those committing fraud. Justifiably, there has been a great deal of worry that this delay will leave consumers at risk of fraud. But many people are questioning whether its introduction will really help to reduce fraud levels, and if there are any other measures banks can be put in place to keep their customers money safe and secure?
Buy Affordable Paintings online in Dubai, UAE, USA and UK. Paintings, Art Rentals, Art Exhibition and Art Prints with Art Smiley. Sell International Arts Online. Get Connected to International Art Gallery, Artists & Art seekers.
While it seems like a logical way of combating bank fraud, putting the CoP scheme into practice will probably only work to a certain degree. A fraudster’s natural reaction to any such regulation is to improve upon their current skillset and work out a means to bypass the new security infrastructure and regulations. In the context of CoP, all a fraudster would have to do is set up a new account in the victim’s name to give the victim further confidence that they are transferring money to a “secure account.”
[ymal]
Another problem that can potentially arise is the idea that customers will become complacent when it comes to security due to the belief that CoP provides them with another layer of protection. Even though CoP will absolutely protect customers against crimes such as authorised push payment fraud, the scheme could leave them vulnerable to more advanced types fraud which are of far higher value.
In addition, almost every bank would have to implement CoP for it to be successful. While the decision to implement the scheme is down to each individual bank, The Payment Systems Regulator has said that Lloyds, Barclays, HSBC, Royal Bank of Scotland, Santander, and Nationwide Building Society, which together account for about 90% of bank transfers, must all have their CoP schemes up and running by March next year. Banks that don’t sign up to the scheme would automatically become targets in the eyes of fraudsters as they won’t need the details of the bank account to match the name of their intended target. Therefore, there would have to be a more collaborative approach from banks for the implementation of CoP to work.
While the decision to implement the scheme is down to each individual bank, The Payment Systems Regulator has said that Lloyds, Barclays, HSBC, Royal Bank of Scotland, Santander, and Nationwide Building Society, which together account for about 90% of bank transfers, must all have their CoP schemes up and running by March next year.
Regardless of when CoP will be introduced, there are other tools to help banking customers tackle fraud, such as dynamic authentication journeys, which requests that a user states why they are conducting a transaction and offer fraud warnings, that are very effective at preventing APP fraud. However, the logic behind these policies can be complex and they require constant monitoring in order to be kept up to date. Once the implementation of these dynamic user flows has been done, it also highlights the question about how the outcomes can be accessed by the third parties that leverage a bank’s Open Banking APIs.
To have any chance of reducing banking fraud, it’s crucial that financial organisations today use all the relevant information they have to generate a full picture of their customers. It is imperative that they utilise the data at their fingertips in order to safeguard their customers while still providing the seamless, friction-free service they demand. A customer’s digital presence will only be protected from fraudsters once banks look at all the elements of security as interconnected, rather than separate components.
By feeding data into a strong and dynamic policy manager that can be nimble and adaptive, banks will be better compliant and secure while at the same time provide robust user journeys that provide the right amount of friction when necessary. By having a more holistic approach to security, rather than focusing on single point elements, they have a far better chance of beating the fraudsters and allowing their customers to live their digital lives uninterrupted.
Controlling data is modern commerce’s greatest challenge - particularly in the rapidly changing financial services sector. Building smart controls that can extract, filter and combine data to feed business logic, frees developers to mix and match sources quickly and reliably. Those controls are APIs (Application Programming Interface), explains Carlos Oliveira from Spinr. They handle the complexities of each data source, hiding the mechanical details of access and control, and translate data to a common format.
Once a common API or network of APIs has been created for data sources, any conceivable application or service can be built to that API.
How does that work in practice?
Consider the commercial environment facing a typical up-and-coming FinTech company. Thinking with APIs helps such a business get ahead of the market. Hundreds of new, technology-based firms are starting up every year, and they are giving more established competitors a run for their money. The lesson is clear: APIs are driving business growth today, and companies that don’t embrace that trend will fall behind.
Challenges and answers in digital finance
Today’s customers know what they want, and are no longer resistant to changing their financial services providers. BAI reports that from millennials to baby boomers, customers expect a highly consistent omnichannel experience above all. They’re also looking for an emphasis on mobile, highly usable tools for customisation, and a way to bring together the information and services they want.
Meanwhile, financial service providers are keen to analyse customer data so they can come up with new ideas and customise offers and services for more personalised customer experiences.
What resources do organisations have to help make this happen? As the old maxim says, you fight with the army you have, not the army you want. Think about any financial business: their existing technical estate likely includes many different data stores from CRM to email, and the company’s development process may be anywhere along the pathway from waterfall to DevOps. They also have to consider performance, compliance and security. But the customer doesn’t care about any of this. The customer just wants their financial services provider to be seamless, efficient and easy to use.
The lesson is clear: APIs are driving business growth today, and companies that don’t embrace that trend will fall behind.
Management of these elements is done by APIs effectively breaking them down into optimal logical components that can be reconnected in the simplest possible way.
Say you have a new product and want to target a specific demographic of people. If you have built APIs across your data sources that work in a consistent way, then your new product developers need to only learn that once. Using a new data source takes seconds.
Such capabilities are useful for organisations of any size. But they can be especially valuable for small and medium-sized businesses looking to remain competitive against larger companies with far greater available resources.
APIs enable more than just speed and efficiency
When financial organisations adopt an API-first mindset, they also gain other benefits as well:
- Democratising innovation
Because APIs hide complexity, they create simple, abstract concepts that anyone can grasp and use in what-if thinking, even if they’re not programmers. Using tools as simple as pencil and paper, or codeless graphical design software, anyone with sector expertise in a company can sketch out how to build a system around data that can address a need or offer a brand-new idea. This can be invaluable across financial services, where customers’ needs are ever-changing.
Far too often in all business, a lot of valuable information and experience is never used because IT is seen as a disabler rather than an enabler. APIs don’t cure this entirely but they do offer a path through it.
- Opening up new data sources
There are well over 20,000 open sources of data available online through APIs, according to the ProgrammableWeb API Directory. And that number has been growing by around 15 new APIs per day.
These APIs provide data from every category of source: geographic, social media, weather, advertising, economics and so on. They also provide a signpost to how the future is shaping up, especially in finance. For example, the emergence of Open Banking – built on open APIs – is driving a lot of new thinking at every level of financial services across the board.
- Opening up new business models
Once a company has built internal APIs that make data accessible to new ideas and services, it’s a small step to making some of that data available to external interests. Any company that is successful in a market has a high degree of current knowledge of that sector, often locked up in data sets across many sources. Other businesses could become new markets for that knowledge, using it either for their own internal purposes or as part of a partnership or joint enterprise.
APIs offer a simple, standard, secure and highly usable route to explore these ideas and find new ways to sell what a company does.
The customer just wants their financial services provider to be seamless, efficient and easy to use.
As Bottomline Technologies stated last year, this is very prevalent across financial services: “Innovations underway include apps to help consumers find the best investment or borrowing offers in the market and tools for businesses to manage their cash more efficiently or forecast working capital requirements more effectively. And this is just the start.”
Where next?
Quickly connecting multiple applications and data sources is a significant operational benefit for financial services companies, but building innovative digital platforms is truly transformational.
By connecting your own legacy systems with third-party data and cloud applications, you may aggregate information flows and create new services, like market updates, from your own digital platforms. This could deliver value to customers with the potential to generate new revenue opportunities.
APIs are now at the centre of innovation creation and also help to enforce the ontology and data standards throughout an organisation. This, in turn, demonstrates the importance of financial services embracing APIs to help solve their key integration challenges, as well as automating and streamlining data operations.
Website: https://www.spinr.io/
Less well known, however, is another more imminent deadline. The PSD2 regulation requires banks to implement facilities for these third parties to test their functionality against a simulated bank environment six months prior to the September deadline, which means that these environments must be in place by 14th March. Below Nick Caley, VP of Financial Services and Regulatory at ForgeRock, explains that despite the importance of this fast-approaching deadline, many of the thousands of eligible banks are significantly challenged in meeting either deadline. And, while there are no formal penalties for not complying with it, there will certainly be consequences that could have long lasting commercial, technical and reputational effects.
Consequences of non-compliance
Banks which fail to meet the March deadline will need to implement fallback ‘screen-scraping’ - where customers essentially share their security credentials so third parties can access their banking information via the customer interface and collect the data for their own services - as a contingency mechanism at the same time as implementing their PSD2 API by the September deadline, something that would not be in the interests of banks, or their customers, and could lead to graver problems further down the line.
There are multiple problems associated with screen-scraping. Firstly, there are the significant security risks it poses. Screen-scraping involves customers sharing their banking security credentials with third parties, which is an outright, bad security practice. No-one should ever feel comfortable sharing a password to a system, let alone one that provides access to a bank account. Such credentials, whilst clearly able to provide access to banking data, also unlock numerous other account functionalities that should only be available to the account owner. Any increase in the risk that banking credentials could be compromised will not build the confidence of consumers.
Alongside security considerations, there are also cost implications since maintaining more than one interface increases the resources required. Each interface will require strict and ongoing monitoring and reporting to the National Competent Authority. While larger tier one banks might be able to absorb this extra cost, for smaller banks this will further compound the already serious burden of compliance with the regulatory technical standard (RTS).
Beyond these very practical concerns, failing to comply with the March deadline will mean banks are left playing catch up on the developments set to be made as PSD2 comes into effect. Avoiding such pitfalls would mean banks can significantly boost their long-term prospects, giving themselves a strong foundation to stay on top of PSD2, meeting regulatory deadlines whilst crucially increasing their ability to compete in the new era of customer-centric financial services.
Despite the clear importance of the March deadline, many banks are still largely focused on developing their production APIs ahead of the September deadline, rather than their testing facilities. For those banks who haven’t yet found a solution, having development teams put a testing facility live in such a short space of time might seem like an impossible task. The good news is that there are ready-made developer sandboxes that banks can deploy in a short space of time to stay on top of the requirement for a testing facility. These sandboxes are essentially turnkey solutions that are fully compliant with the defined API standards, making the March 14th deadline much easier to digest. Banks should look to these ready-made sandboxes if they haven’t already found a solution.
Looking further ahead
As the trusted holders of customer banking information, PSD2 gives banks an unrivalled opportunity to add value for their customers. Through development of new interfaces, modernization of authentication methods and the redesign of customer journeys, banks can achieve the new holy grail for any business; delivering intuitive, secure digital services and experiences that are personalised to the customer offering far greater insights and advice.
With the focus on complying with deadlines, it’s also important for banks to keep an eye on the competition. The promise of PSD2 is to provide a level playing field to encourage competition and innovation. There are certainly plenty of new competitors: Account Info Service Providers (AISPs), and Payment Initiation Service Providers (PISPs), retailers and internet giants, all have the opportunity to introduce their own payment and financial management products and services that integrate directly with the established banks.
At the same time, the challenger banks built from the very beginning to be ‘digital natives’ have been leading the way with innovative customer-first experiences and third-party marketplaces that go beyond what is currently on offer from traditional players. This means banks will need to provide better digital services to stay competitive, giving people more freedom and choice in the way they interact with financial services.
The March deadline is the first litmus test for which banks are keeping up with PSD2, and which are falling behind. However, as we have seen, the far-reaching changes that PSD2 heralds means this upcoming deadline won’t just be a test of a bank’s ability to meet technical regulations - it will be a strong indication as to how well each bank will be prepared to stay competitive in our increasingly digital future.
.While business process management (BPM) has been around for decades, hype around AI has led many execs to jump into implementing AI rather than bothering to deploy Robotic Process Automation (RPA) systems. In their minds, there’s little point implementing something that will likely be replaced in the near future.
However, increasingly BPM, RPA and AI are becoming the foundational layer for digital transformation that doesn’t require a costly wholesale rip and replacing a business’ IT systems. Combining existing process management with both RPA and AI when looking to realise value-driven transformation ultimately creates a more efficient and productive outfit. Andrew Tarry, Head of Software Engineering at 6point6, outlines a few examples of why this is the case.
Existing BPM systems
Business process management forms the basis of most workflow orchestration within businesses. From the classic route and queue orientation of service management to everything we would traditionally think of when interacting with businesses that deliver customer service or financial month - or quarter-end close reports. At its most fundamental, BPM forms the basis of how humans interact with predefined process flows of data in order to manage work. It is the system that keeps information flows consistent and provides those managing said information with a ‘heads up’ display on how the overall operation is running.
However, increasingly these systems are implemented and then left to run regardless of whether the businesses’ needs change. When systems are not properly maintained they become brittle and can create issues with interdependencies further down the process line. For example, a change to a retailer’s stock inventory at the warehouse where the system has not properly been maintained could have a significant knock-on effect for their order fulfilment success later down the line; impacting negatively not only on the internal processes but also the customer’s experience of the brand.
RPA’s ability to expose underlying APIs means that routine decisions made by humans can be offloaded to an AI system and then passed directly back to the RPA agent – significantly streamlining processes and thereby reducing costs.
Overcoming the temptation to ignore RPA
RPA tends to be discounted for the more hyped AI during digital transformations because it is often seen as an integration of the last resort for systems that cannot be automated by other means. The general hesitation is that if the system will be replaced by a better AI-based one in the near future, then why invest in RPA in the first place? Replacing a major system tends to be part of a big project that will invariably cost a lot of money, take a long time and involve a significant amount of risk. Further, many organisations have tightly coupled software and business processes, which means they cannot evolve in real time as their business environment does.
However, RPA actually presents the opportunity to implement an ‘automated swivel chair’ integration. For example, a service agent such as a call centre operator could enter details into a CRM solution while simultaneously enabling this data entry to be inputted to the order management system, saving seven minutes per transaction on average. In a high volume call centre, these savings would drop straight to the bottom line.
Further, RPA’s ability to expose underlying APIs means that routine decisions made by humans can be offloaded to an AI system and then passed directly back to the RPA agent – significantly streamlining processes and thereby reducing costs. In insurance for example, in replacement of a claims agent in a call centre, an RPA-backed claims management system could be exposed as an API, presented as a mobile application to customers. The claims information gathered through the API could then be passed to an AI system that would make the claims payment decision on the fly without the need for human interaction. In high-volume, low-value claims environments such as travel insurance claims, this would be cost-effective and would reduce the cost of attrition claims; it would further give back much needed time for claims agents to deal with sensitive and high-value cases.
Far from being a waste of time, through investing in RPA you can achieve the required results in much shorter time spans and could even delay the replacement of the legacy system altogether.
Senior decision leaders must think carefully about how to remove legacy process management systems without negatively impacting on overall productivity and decision making. Far from being a waste of time, through investing in RPA you can achieve the required results in much shorter time spans and could even delay the replacement of the legacy system altogether. A pragmatic architecture, harnessing BPM, RPA and AI together brings to the fore the core benefits of value-driven transformation.
When it comes to trading globally, banking access and reconciliation can be remarkably complex. Not only do businesses interact with a range of financial institutions to track funds across multiple bank accounts, they are also required to reconcile accounts receivable and payable transactions throughout the global supply chain. Funds may get lost in transfer and invoices can be difficult to reconcile – forcing valuable personnel to deal with unnecessary complexity rather than driving progress.
Introduced in January, the UK’s Open Banking initiative changes this. The launch of Open Banking is set to radically change the way consumers, businesses and banks pay and get paid, and how they manage their data. The introduction of a unified Application Programming Interface, or API, across financial institutions creates a foundation in which data can be seamlessly and securely shared in real time.
The beginning of an era
While the UK regulations are only mandatory for the top nine banks in the country, the initiative is gaining wider traction. A growing number of UK financial institutions outside the mandated nine banks are volunteering to open their APIs to Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs), recognising the open approach will enable them to offer new services and become more competitive pre settlement funding.
In the new world of Open Banking, an AISP can consolidate reams of bank account statement data and deliver it to the customer in a single interface, making it perfect for treasurers of multi-banked organisations. Payment service users – whether they are individuals or businesses – are now able to instruct their banks or payment service providers to share their bank balance and transaction information with regulated AISPs. In addition to displaying this information on a user-friendly dashboard, the AISP can convert all this transaction data into the required format and send it to the customer’s ERP or Treasury Management System.
Similarly, before the introduction of Open Banking, businesses and consumers would have to log into each bank separately to initiate payments, using different workflows and security protocols. With the advent of Open Banking, individuals or businesses are now able to mandate their multiple banks or payment service providers to accept payment instructions via their PISP’s app.
Making things easier for suppliers
Through initiatives such as Open Banking, as well as the New Payments Architecture which aims to modernise the UK payments infrastructure, we’re likely to see the development of modern Inheritance Loans payment services. One innovation to look out for is Request to Pay. This will see the introduction of sophisticated electronic invoicing into the payment system, making it easier to pay and get paid, with more flexible payment options in terms of timings and partial payments.
Instead of a Direct Debit, where money is simply taken from a bank account, the Request to Pay mechanism will issue a request to the payee. They will have the option to pay in full immediately, pay later or arrange a payment plan. Designed partially to accommodate the trend towards more flexible work and the rise in the ’gig economy’, it offers greater flexibility to individuals and is likely to reduce the risk of non-payment or default.
Where cash flow once existed in a complex ecosystem of different financial systems, businesses will now be able to enjoy greater simplicity. The potential for a single dashboard that unifies all accounts in real time while securely and effectively reconciling invoices with seamless, integrated incentives will help maximise supply chain value.
Beyond UK borders
The innovation potential of Open Banking does not stop here. In London, unprecedented levels of collaboration between banks and FinTech providers highlight the mutual benefits of combining a bank’s scale, large customer base and economic muscle with the fast-moving and innovative skills of smaller FinTech firms.
Innovations under way include apps to help consumers find the best investment or borrowing offers in the market, and tools for businesses to manage their cash more efficiently or forecast working capital requirements more effectively. And this is just the start. Competition will intensify with new entrants, offering innovative value propositions and new business models.
Other markets are also directing an API-driven open banking agenda. In Europe, the revised Payment Services Directive, PSD2, was also launched in January 2018 and comes into effect from September 2019. Australia will introduce Open Banking in June 2019 for the country’s Big Four banks. The Hong Kong Monetary Authority has announced an Open API Framework which paves the way for banks to share data with third-party providers. Similarly, Canadian authorities are exploring the introduction of Open Banking soon after the launch of its Real Time Rails programme. The Monetary Authority of Singapore is also encouraging banks to adopt a voluntary transition to Open Banking. And in the US, a number of the large banks already voluntarily offer open APIs to third parties, pre-empting the regulators by using APIs as a competitive advantage, rather than mere compliance with a mandatory change.
We are seeing the early stages of a seismic industry migration that will come into full force over the next five years. The emergence of innovations with the potential to drive simplicity and increase flexibility are turning a once complex web of financial institutions into unified tools to maximise value creation. At Bottomline Technologies, we thrive on maximising the benefits of innovation, leveraging the UK’s head start to help our global clients fully realise the immense potential of open banking.
