What Can An API Do? Pretty Much Anything

This blog confuses Open Banking APIs with Partner APIs and these are two very different business models and use cases:

“I hosted a dinner focused upon Open Banking recently and what it means to fintech firms and start-ups. There were no bankers at the table, but a lot of firms who consult, provide systems, or are deploying new businesses in fintech sat at the table.

The general consensus around the table is that Open Banking is all about customer focus, first and foremost.

Beginnings of a better experience

For example, the customer onboarding experience is horrendous today, involving forcing the customer into the branch with all of their identification documents.

If we could simplify and take the pain out of that process through APIs, that would be amazing.

The question then comes down to: How do you commercialize this?

After all, if onboarding could be done like check capture via a smartphone camera, capturing your face, passport, and address, then that becomes a commoditized service that no one wants to pay for, but everyone would use.”

Helping customers share their data with Fintech’s is the most common use case discussed for Open Banking, which is entirely different than establishing a partnership to aid mobile account opening. The new Mercator publication “Developing a Sustainable API Portal Business Plan” identifies six common use cases for APIs (partnering is use case # 2, while Open Banking is use case # 3).

The article does a good job of describing the challenges a Fintech will have in trying to poach bank customers and the regulatory burden banks face in adopting the data sharing concept associated with Open Banking:

“Equally, how do you get customers to switch from banks to fintech firms, when they’re happy with the service they’ve got?

The biggest switch movement in the U.K. came around from Santander, but it was costing them a billion pounds a year with the 123 account that paid higher interest rates than any other U.K. bank account.

It did get people to switch but at a very high cost—which is why they’ve dropped it.

People rarely switch bank accounts, and this is the real challenge for the challenger banks. These challengers claim that it starts with gaining their trust through usage. So, you start as a secondary account and then the challenger can use the Open Banking API economy to give information enrichment.

That’s what Monzo, one of the leading U.K. digital banks, does. Over time, you find you’re always using the challenger’s app and so why are you still with the old bank? It’s at that point you switch.

That is the idea anyway, but it begs the question: How many challengers will really challenge the big banks versus be acquired by them?

This is what has happened with Simple and Atom, which are now owned significantly by BBVA, and many start-ups want the same end game: to be acquired by a big player at a high cost.

Open Banking no comfortable ride

Bringing that back to Open Banking, there is a lot of fear, uncertainty, and doubt (FUD) about it.

This was evidenced by the way the mainstream U.K. consumer press all said you’d be hacked and defrauded if you allow third-party access to your bank account, even though the regulator has forced it to happen.

It’s obviously not true—why would a regulator bring in a regulation to make you less secure?—but the FUD works.

For example, if a third-party compromises your data, who is liable? Where is the burden of proof?

Generally, it is with the bank. Equally, GDPR—the General Data Protection Regulation—makes this a tricky one. How can you share all the customer data when the other regulation is telling you not to?

This has all been driven by E.U. regulations for Open APIs around payments. The U.K. has gold-plated the regulations, and made it into Open Banking, and the bottom line is that banks are being told to open up their data and processes to third parties.”