Open banking via API is a fact
Open banking via application programming interface (API) is an integral component of the future of banking. Some in the industry will welcome that fact. Others will not. But in order to prepare, we must accept that it is a fact.
Do we have to change? If we want to keep up with our competition – traditional and disruptors – the answer is yes. Do we have to learn to love API? If we want to continue to satisfy customer needs and enhance the industry's product offering, the answer is yes. Do we know what we must do?
If we have been paying due attention to the changes taking place on an almost daily basis, the answer is yes.
One issue that every bank will need to address is the question of just who does what in the changing landscape. Do-it-yourself is one option. Enlisting the help of a partner is another.
The latter is of course not entirely new. Banks have become well versed in identifying client needs and then deciding whether to provide new products via internal resources or to turn to an external provider. But open banking will take us well beyond past experience. In the past, traditional banking was built layer upon layer, enabling bridges and blocks to be assembled and put in place. API is much more open to enabling partnerships to be struck for external provision if internal provision is for any single reason or combination of reasons not deemed to be practical or desirable.
Such increased flexibility will be essential to banking in the future. Not only will banks be able to extend their product offering efficiently and cost-effectively, but the products themselves will have more breadth and depth.
SWIFT, for example, has been enabling customers to send international payment orders for more than four decades. But once instructions have been issued to the bank, the customer has traditionally been wholly reliant upon bank staff for keeping them apprised of a payment's progress.
In the brave new world of API, customers will be able to track their payments in much the same way they might track a parcel being delivered by the likes of courier services such as Hermes or DPD.
Customers will be able to see where a payment is at any single point in its life cycle. They will be able to see who is handling it, who is delaying it and, arguably most importantly, just who is adding to costs. International payments that in living memory often took days to reach the beneficiary via the banking system will be made instantly, as they already are through technology-enabled specialist brokers.
Putting this firmly into a broader international context, API will enable the banking world to resume growth after 10 years of shrinkage caused by the global financial crisis that started in 2008. Banks will increasingly team up with strong banks in countries and jurisdictions where they do not have a direct presence, enabling them to deliver more of the services that customers need, quicker, better and more efficiently.
Back to the future, it is clear banking is putting more and more power into the hands of the customer. In this new environment, only those who can deliver authority and knowledge will continue to thrive, helping clients to transaction more efficiently and with much less unnecessary distraction. The practical implications are clear. Corporate treasurers who can see their cash flows more accurately can direct those cash flows to their preferred destination easier and quicker.
The challenge that we banks and our clients face is one created by the need for enhanced transparency and greater efficiency. The answer lies in technology and well-structured mutually beneficial partnerships.
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