This article in Forbes is informative and depressing. It shares surveys indicating three-quarters of banking APIs are for internal purposes and that number will double by 2025. Apparently budget is easier to get when the ROI is based on savings. That new product launch with a strategic partner has no similar proven ROI and so lingers until competition forces action.
The EU mandate for open banking eliminated that problem; banks had to build APIs to support access to the “partners” regulators identified and vetted. Unfortunately, the mandate failed to properly identify a full and well-thought-out API set and protocol that protected the data, provided pass-through authentication, or which the use case scenarios really required. As a result, implementation has been slow and exhibited severe reliability and manageability issues that are now mostly fixed.
It is sad so many U.S. banks appear to be ignoring the learnings from these EU implementations. U.S. Banks should know what EU use cases are gaining traction and which can be implemented in the US market that lacks an Open Banking mandate:
“Do all banks need to start building out their own APIs? Not necessarily. But there are things all financial institutions need to do regarding APIs:
• Assess the quality of third-party APIs. Many institutions claim to compete on their alleged superior “customer experience.” If that’s true, then they should be able to describe what makes their experience different and better. And if they can do that, then they should be able to evaluate whether a vendor’s API can help them support that superior experience.
• Fill in core vendors’ API shortcomings. If core vendors’ APIs don’t support an institution’s customer experience and product differentiation, then that institution needs internal capabilities to build, deploy, and support its own APIs. While some institutions develop private APIs for their internal use today, many will need to develop public APIs in the future to support their strategies and partnership efforts.
This isn’t easy—and shouldn’t be left to the IT department (or any one functional department) to do. Being able to do these two things will require many banks to establish new organizational roles and teams that span IT and the lines of business.
Developing an API strategy requires banks to have: 1) a business strategy that clearly defines the differentiated experiences and products the firm offers, and 2) an ongoing focus on the APIs that enable them to connect to their ecosystems to deliver on their differentiated experiences and products.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
