Guest blogger Conrad Sheehan shines a light on the emergence of APIs as innovation drivers.
The adoption of powerful, open application programming interfaces (APIs) provides an opportunity to shape product innovation and partnerships across financial services, particularly in the payments industry.
APIs are the connectors, making it possible for producers, consumers, products and services to connect and create value. Banks, payment service providers, fintechs, and other financial services-related companies are using them to expose business data, functionality and services to the outside world—stretching beyond their customary internal borders to create broader, unique business partnerships. It is how financial institutions are beginning to establish themselves as an integral part of a full, rich ecosystem. Indeed, APIs represent new opportunities to enable and accelerate transformation of financial services in highly efficient ways to deliver enhanced customer experiences.
Figure 1: How APIs work
Both regulation and market demand around the globe are influencing and shaping perspectives of Open Banking API product innovation in local markets. The European Union’s revised Payment Services Directive (PSD2), for example, is one of the most notable acts of regulation that aims at nurturing innovation, competition and data sharing in ways that better serve customers. PSD2 sparked similar legislative action in Australia and Hong Kong to create an open environment for their financial services markets. In the US, NACHA’s API Standardization Industry Group is an example of a market-driven initiative focused on defining API standards in payments. The ability of APIs to enable payments players to deliver more valuable, customer-focused payments experiences and find engaging ways to offer true value beyond the transaction itself continues to fuel demand across the digital ecosystem.
I was delighted to participate recently in a panel discussion at SWIFT’s Latin America Regional Conference 2018. When polled about API enablement, 70 percent of the audience indicated that their organizations are using APIs. The audience also shared about the areas that APIs are helping facilitate: internal technology (25 percent), third-party integration (18 percent), and business flows (8 percent); nearly half (49 percent) answered “all”. The results further highlight that APIs have evolved from back office to front office and are enablers of third-party partnerships. Panel participants articulated that it is essential to start with strategy, and while organizations are competing, that there is a need for standards. The discussion also emphasized the importance of being mindful of trust, security and data protection as well as learning from initiatives around the globe in markets such as Asia that are leading innovation. Throughout the conference, there were other discussions about APIs such as SWIFT global payments innovation, which has APIs for banks to integrate the payment tracker into their channels. There are countless examples of APIs as products emerging from Open Banking and as propriety offerings across financial services.
We see five key benefits of APIs as building blocks for the transformation of payments and financial services overall:
- Productization. In the increasingly open financial services industry, an API is more than simply a means to access back-end services. It is a product in and of itself that providers can monetize and set as a foundation for other new services.
- Collaboration. Some of the most popular (and profitable) uses of APIs result from third-party developers working together and creating apps that define new markets and create new revenue streams.
- Enabling “API First”. For a digital business, it’s all about how you engage with API consumers—providing exactly the data they need, in the format they want to use.
- Speed to Market. APIs can be provisioned quickly, often with minimal back-end refactoring required.
- Security. The leading API Gateways have been vetted for security and are compliant in many areas (PCI, HIPAA, etc.) They also offer OAuth and LDAP support.
As organizations seek to adopt digital business models, they need to ensure that everything and everyone can interact with what they have to offer. It’s no longer just about enabling mobile apps or even embracing the Internet of Things. It’s about having an API-driven ecosystem that can power your digital business and provide stakeholders the information they require in a faster world.
Managing Director – Payments