Will Banks Open App Stores? A Berlin Startup Thinks So

Open Bank Project has a bold mission: help banks open their own app stores using the German startup's application programming interface and management platform.

"Developers are hungry for data," says Simon Redfern, founder and chief executive of Tesobe, Open Bank Project's parent company."[APIs] bring innovators to the bank."

The young company's initiative comes at a time when financial institutions worldwide are struggling to keep pace with customers' digital demands and to woo top tech talent. Some banks are warming up to crowdsourcing software ideas and to hosting events where developers code bank-related apps as efforts to innovate quicker.

Open Bank Project, which graduated from a 2013 fintech innovation lab in London, could provide another option. The startup promotes its open source API to companies and developers to use to build apps and services related to financial transactions. The startup aims to sit its API on top of banks' core systems, and have financial institutions distribute vetted apps through a branded app store.

"It allows for lots of innovation and more healthy competition," says Redfern.

The startup, which has run proof of concepts with banks, seeks financial institution partners worldwide in a bid to let account holders share their financial data with apps of their choosing while helping banks innovate quicker.

"It is not anymore a question of if a bank will use APIs, it's a question of when and how," says Redfern.

The young project now counts 11 apps that range from playful to serious, all of which show how developers can use its RESTful API.

Take Social Finance. An organization such as a charity or an individual could use the app to share transactions with the public or an accountant. The app also allows for commenting and geotagging. Then there's a singing bank app, which makes music out of financial transactions (low notes represent money leaving), while another app is designed to let the visually impaired make verbal account balance queries on Android devices.

Six of its existing apps were designed by Tesobe, while outside parties designed the others. All of them use Open Bank Project's API and many of them are developed for mobile devices first.

"We're gradually building up the ecosystem," Redfern says. The startup will host a financial technology hackathon in London on March 21.

In ways, Open Bank Project is similar to Yodlee or Intuit. But unlike those U.S. companies, Open Bank Project plans to only provide services through banks, rather than consumer-facing apps like Mint.com. Open Bank Project relies on OAuth, an open standard for authentication.

"A bank is still there as a gateway to authentication," Redfern says.

As such, Open Bank Project's software runs through bank data centers. Other security measures include not sharing user credentials with third parties and encrypting all communication.

Plus, the financial data provided to third-party apps will initially be in read-only mode, while the customer experience would work something like this: A person could visit a page for an app store after logging into his banking account. Then he could give an app permission to access his data to use the service in a similar way to Facebook third-party apps.

Consumers and corporations, more broadly, are demanding customized digital experiences.

"Anything that gives consumers the ability to create their own user experiences is a very good thing," says Pete Glyman, president and co-founder of Geezeo, a U.S. fintech vendor that also makes its API available to banks. "The developer community is hungry for the ability to interact with consumer products.... Then, financial institutions can crowdsource the development of different user experiences."

There are bank tech challenges, of course. Glyman cites the biggest obstacle as banks using varied vendors for different services, which requires workarounds. (Many bank tech vendors don't make APIs available.) "The heavy lifting is to build all the hooks to the points of services," he says.

Kristin Moyer, research vice president in industry advisory services, banking and investment services at Gartner, says Open Bank Project's API will likely appeal to developers more so than licensing partners initially.

"It is certainly possible that we will see something similar to the Open Bank Project emerge in the U.S.," says Moyer. "However, I would expect to see midsize and large U.S. banks focus more on building their own APIs and providing them to partners and developer communities than on taking an open-source approach over the next two to three years."

Signs that banks themselves are more willing to expose some of their data have been surfacing in recent months — slowly. Credit Agricole and Deutsche Bank have tried to create app-like experiences for their bank customers. Then, Garanti Bank in Turkey lets customers cherry-pick their digital apps — several of which are from third parties.

In the U.S., meanwhile, a young company called Standard Treasury works with commercial banks to create RESTful APIs, while Capital One sets itself apart from its competitors in making available several APIs.

Banks can also gradually open access to their data. "It doesn't have to be an on and off thing," Redfern says. "[You] can slowly open it and end up with an App-store type of idea."