The age of
For years, fintech companies have collected consumers’ bank data when they willingly hand over their bank credentials to use a service. However, only a handful of banks are sharing financial data with third-party developers through a more secure and modern method: application programming interfaces.
Some banks are moving in the right direction by making it easier for third parties to work with them. Bank of America, for instance,
Today, thousands of banks use disparate and customized formats to send and share information, employing different nomenclature for common terms. This can make for a long and expensive new account setup process where clients need to download and read extensive documentation, create custom code, test and await certification before being “live.” This delays time-to-revenue and places extra burden and friction on the largest corporations that operate globally and use multiple cash management banks. It can also inhibit the creation of market utilities, such as payment clearing systems, which inherently need standards to support communications among multiple parties.
Without standards, every time a developer tries to create a new app, he or she will have to modify that app to interact with each bank. With standards, however, a developer could make one app that would interact with countless banks without needing any modifications. A corollary to this need for simple, standard APIs is the desire to create accessibility via the preferred approaches, REST/JSON vs. SOAP/XML, which are technical protocols for data integration.
In Europe, the revised
What’s at stake here is the evolution of payments and, more broadly, how banking services are consumed not just by consumers but by small businesses, large corporations, other banks and market infrastructures.
Innovators like Apple, Google and Amazon as well as fintech startups are nipping at the industry’s heels in the hopes of becoming the new face of banking.
A case in point is the card processing and software startup Stripe. It’s been
Getting to a more open and interoperable banking environment requires a broad, industrywide push. Given its history and role in the payments ecosystem, Nacha — which supports the ACH network in the U.S — has stepped up to help drive this change. It launched an API standardization industry group that has identified an initial set of 16 interbank services to be standardized and enabled via API that fall into three broad categories: fraud and risk reduction, data sharing and payment access. (Toward that end, at
Indeed, use of APIs will play an important role in the future of banking. Standard, easy-to-understand and easy-to-implement APIs can help institutions combine their size and scale with the cutting-edge, disruptive technology that fintechs are developing. In a perfect world, banks will be able to innovate themselves with the same agility as a fintech by accessing and consuming their own APIs.
Banks must look beyond today’s fee revenue to developing services that will boost customers’ loyalty and address latent demand. Open APIs could yield the greatest banking innovation in a generation. But to get the most from this opportunity, the industry needs standards.