The future of payment APIs
Application programming interfaces enable seamless payments that have helped make apps and banking services so convenient and popular. But banks must now work together to increase standardization and security and to guarantee quality to ensure customers continue to enjoy these benefits.
SWIFT can help them do that, says Stephen Gilderdale, Chief Platform Officer, SWIFT.
People increasingly expect seamless and interactive experiences in everything they do, whether they are shopping, booking taxis or checking bank balances. Application programming interfaces (APIs) are the most widespread technology available for enabling those experiences, powering the apps that have propelled companies such as Amazon and Uber to leading positions in their industries.
By bringing payments closer to the point of transaction, APIs have dramatically improved the convenience of the user experience – the cornerstone of their appeal. It means money flows from the point of sale through to the beneficiary more efficiently, simplifying business for corporates and solidifying their relationships with their banks.
When it comes to payments, customers value transparency and predictability above all else. When people send money, they want to be certain it will arrive where and when it was intended, without unexpected additional cost – a particular concern for payments that cross borders. In an age when goods and services are increasingly digital, and delivered instantly, speed of payment is also vital – though it is perhaps most important in the retail space. APIs have emerged as the best way for banks to deliver on all of these priorities.
Using APIs, banks can offer their services in a self-service manner, with their customers integrating them into their own offerings. Because they are quick to build against and integrate, developers can respond to changes in demand quickly, as technology advances and the demands of end-users evolve. As banks improve their payments services via APIs, making them faster, more secure, more intuitive and easier to mine for data, so will their value increase to their customers.
But not all banks, or APIs, are created equal. Among the leaders in API adoption are a new generation of digital banks that have the technology embedded in their founding infrastructure. Some traditional banks have also been quick to recognize how this technology can strengthen their relationships with their customers, and exposed existing payment services and other parts of the business through APIs.
These differences in maturity may be partly explained by the motives banks had for embracing APIs. The banks that recognized their value to their clients earliest had a head start. Others were later to adopt the technology and took the plunge in response to regulations such as Open Banking in the UK or the second Payment Services Directive (PSD2) in Europe, which were explicitly intended to stimulate competition through open access to banking services.
With some banks racing ahead in their enthusiasm for APIs, and others approaching more cautiously, the result has been fragmentation. A range of different standards and providers has emerged and the lack of consistency between banks is impeding the scalability of the business by reducing interoperability.
It is not that variety is unhealthy: some variation between bank APIs is inevitable and even desirable to allow differentiation of services. But innovation should occur within a layer that sits above a more standardized set of basic services. When it comes to payments security, for example, there is much to gain from collaboration, because a high profile failure on one platform could undermine confidence in others. Where APIs are varied in terms of the services they offer, they can still be standardized in terms of how they are defined and exposed to clients.
SWIFT has historically played a vital role in facilitating collaboration between banks, most notably through its standards organization for financial messaging. Now SWIFT is doing the same for APIs, and is working with regional standards bodies, such as The Berlin Group and STET in Europe, to achieve this goal.
Our new global payments innovation (gpi) incorporates a set of APIs for banks to access much enhanced payment information. The gpi APIs offer banks high levels of transparency on payment fees, along with settlement data and delivery status, to help them better understand and manage their liquidity. Possible expansion could include further functionality to simplify cross-border payments, such as sanction screening, fraud detection, screening for AML or other analytic and compliance services. Data provided through these APIs can also be easily integrated into the services banks offer their clients.
We are already seeing how gpi, powered by APIs, can revolutionize the cross-border payment space. For example, SWIFT is working with banks from Australia, China, Singapore and Thailand to build a platform that will deliver real-time cross-border payments. International payments have always posed particular challenges due to concerns around the use of domestic data, AML and FX related regulation. But we believe these challenges can be overcome with a continued spirit of collaboration around SWIFT gpi, constructing an enhanced SLA, and enabling banks to bridge domestic real-time payment systems.
This project, which is currently in a proof of concept phase, will initially focus on payments into Australia on the New Payments Platform (NPP), for which SWIFT already provides connectivity. It will not require significant investment in new technology, but will leverage existing domestic real-time payments systems as well as SWIFT's messaging network and gpi.
In time we hope to show this initiative can be scalable, inviting other markets with real-time payments systems to participate in the scheme. But this is just one example of many potential projects. APIs have already transformed the payments landscape. To reach the next level, banks just need to embrace the new collaboration opportunities they offer.