Are Open APIs changing the game? “Open banking APIs will not kill commercial APIs”
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You might already be familiar with open APIs —there are obviously both benefits and drawbacks but this interview is not about them. We talked with ACI Worldwide’s Lu Zurawski & Mark A. Ranta about standardized Open API governance frameworks, open banking APIs vs. commercial APIs, the transformative nature of open APIs and more.
JAXenter: How feasible is it to create a standardized Open API governance framework and why do we need one?
Lu Zurawski: Conventional wisdom says we do indeed need Open API governance frameworks. Standardization creates certainty and helps achieve critical mass. The primary driver behind Open API-based banking, certainly in the E.U. and the U.K., is creating a new environment that challenges the regulatory status quo and actively encourages alternative approaches. There is no harm in trying to create standardization frameworks, but writing prescriptive technical standards in the style of traditional bank messaging formats may not be the best solution in today’s market.
JAXenter: Do you think an open banking APIs can/will kill commercial APIs?
Lu Zurawski: No, I don’t believe open banking APIs will kill commercial APIs, as they are set to different needs. The commercial APIs that overlap will likely fall by the wayside, however many of the businesses and business cases those APIs support won’t vanish as they have already built a consumer base. Unless a new service with a better value proposition is put in its place, consumers likely won’t move from their current habits.
JAXenter: What value does Open API technology bring to banks with outdated technology systems?
Lu Zurawski: Banks could use Open API technology and the accompanying collaborative mindset on three different planes: to work out which components of systems are important and which can be jettisoned, either from the business entirely or into a collaborative setting; to reaffirm which parts of legacy technology still carry value and their potential to be harnessed in wider business ecosystems; and to gain access to a universe of valuable services provided via Open API by other providers beyond the walls of a financial institutions, while avoiding expensive self-build options at the same time.
JAXenter: How can Open API technology improve customer experience and optimize back-end efficiency?
Mark Ranta: The open banking and Open API discussions allow banks to start bringing together various services from all over the organization, to create new value propositions and identify redundant systems for removal while their siloed status makes for an easier, less costly removal.
Consolidation is key in banking and it’s something we’ve heard for a very long time. By using Open API technology to introduce transformation, banks and financial institutions can innovate at two speeds: keeping their existing services online, while building new alternatives in the background.
From a customer experience perspective, one is able to sustain ‘business as usual’ while accommodating accelerated new product development on the side. With the ability to support digitally enabled touchpoints regardless of their underlying technology (voice, touch, machine, etc.), Open APIs have established themselves as a ‘super channel’ for product and service diversification.
By using Open API technology to introduce transformation, banks and financial institutions can innovate at two speeds.
JAXenter: What are Open APIs’ potential use cases in commercial banking?
Mark Ranta: There is a myriad of potential use-cases for Open APIs. One example is if a bank was looking to create a new fleet management card offering. Using API technology, the bank could link Geo Location capabilities to a card management tool and establish the rule that if a card were to leave a designated geo boundary site it would automatically disable. When you marry this potential with the ability to limit card usage by traditional merchants, one can start optimizing fleet management spend. This is just one example. The benefits for specific high-value functions such as wire initiation and trade finance are extensive and it’s within these of new potential that alternative business propositions begin taking shape.
JAXenter: Can Open APIs disrupt the loan and refinancing markets for both consumer and business customers?
Mark Ranta: Absolutely. Think about the wide array of alternative information that consumers could tap into as they start researching loan and refinancing options. A consumer who has made rent payments on-time for the past three years, or who makes debit purchases of $1,500 per month, for example, can start leveraging these historical indicators in a massive way compared to traditional methods. We are already seeing this today in the FinTech space.
JAXenter: How transformative can open APIs be and how much can they change the way traditional financial services are delivered?
Mark Ranta: Open APIs are both a technology and a mindset with the potential to completely change the way we think about banking. It has the ability to tear down, rebuild or replace current financial tools and services, as well as establish new consumer-centric experiences in their place. By shifting to a business innovation model that puts focus on product managers, solution developers, and the individual services within processes today you have to sit and rethink everything.
The question of widespread adoption is not necessarily ‘if’ but ‘when.’ FinTech challengers and digital banks are following this model in proof-of-concepts and real-world solution. Once the big banks start down this path, however, that is when consumers will really start to a feel a change in the status quo across financial services.
Open APIs are both a technology and a mindset with the potential to completely change the way we think about banking.
JAXenter: Is open banking an opportunity or a threat?
Mark Ranta: It’s the classic double-edged sword: open banking is an opportunity for those that embrace it and a threat for those who don’t. The new payments ecosystem is being readied today from both a technology standpoint and a regulatory one in certain geographical markets (take PSD2 in Europe, for example). The real question is who will lead the landgrab, as that will provide the greatest indication.
JAXenter: Why should developers be interested in this topic?
Mark Ranta: This trend is not just a technology, it is an organizational mentality as well. It is embracing the fact that innovation is not necessarily contained within four walls, nor does it need to be driven by folks in one’s company (or industry even) for companies, including financial institutions, to reap the benefits. It’s not just developers that should be interested, it’s the broader business as well.