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Open API Banking – Weighing the Risks vs. Rewards

April 14, 2017

Across the payments industry, a global migration to payment services based on open Application Programming Interfaces (APIs) is under way. Soon it will be the norm to obtain account information and manage payments using third-party applications that connect directly into bank systems via public domain APIs—a development which promises to fundamentally transform the payments experience for end-users ranging from individual consumers to global corporations.

But as banks provide access to third parties, are they at risk of disintermediation? Will they be reduced to utilities, providing commoditized account management services while ceding control of the customer experience to third parties? Or do APIs represent an opportunity for competitive differentiation?

Paradoxically, the answer to both questions is – yes. Banks that approach open APIs purely from a regulatory compliance perspective (think PSD2 in Europe), or banks that ignore the API movement altogether, will indeed run the risk of becoming interchangeable financial utilities. In contrast, strategically-minded banks will find that they can increase their competitiveness and market reach through the provision of new services based on API banking:

  • Embedding pay-from-account options in point-of-sale and ecommerce applications, tapping into a universe of transactions that today are typically routed through credit or debit cards
  • Allowing new accounts to be created via APIs, expanding the range of customer acquisition channels
  • Providing corporate customers with rich data sets for cash forecasting and liquidity management via APIs that can be easily integrated with corporate treasury and ERP systems

Like all opportunities, open API banking comes with associated risks. To capitalize on the potential of open APIs for the front office, banks need to carefully evaluate their back office. Are they ready for the 24x7x365 world of real-time open API-driven transactions? Will they be able to handle the exponential increase in traffic generated by hundreds of third-party apps tapping into their services?

To learn more about how banks can address these questions and realize the competitive advantages of open API banking:

Author

Veejay Jadhaw
Chief Technology Officer, Global Payments Solutions, D+H

Veejay Jadhaw is the Chief Technology Officer for D+H’s Global Payments Solutions unit. He brings over 18 years of experience in the financial services and high-tech segment, with a strong track record & expertise in research and development, innovation and transformation, and product strategy & management.

Veejay Jadhaw