Open to Change: The API Factor

It’s a simple acronym—API—but it means so much to every industry. And for banking professionals in particular, it means even more.

For the record, an API—or Application Programming Interface—is basically a set of protocols that allows one software program to talk to another. It’s used to create specific kinds of functionality that other apps can draw on, which makes it the foundation for every kind of software development. And in the digital age, it’s the ultimate tool of transformation.

Again, it all sounds so simple, but there’s at least one big complication. When we talk about APIs, we mostly mean open APIs. And for an industry built on the twin foundations of confidentiality and compliance, that’s one gigantic giant issue.

To be sure, many companies and industry groups in financial services have launched aggressive initiatives driven by APIs. For example, as covered in this space last year, organizations like Square launched integration programs that allow transaction data from one provider to be fed directly into the cloud-based financial records maintained by another provider. The ease with which these diverse business applications move data into ledgers securely and swiftly is enabled in part by the APIs at the center. And way back in 2012, Intuit opened the APIs to its financial data service in the U.S. and Canada, specifically to nurture the next great killer finance apps. That was a first for the company, and it definitely represented a new era of openness.

Just this year, Citibank—which has become a strong advocate of using the developer ecosystem to power innovation—launched the Citi Mobile Challenge. This is billed as a “virtual accelerator with a robust curriculum and mentorship program aimed to inspire developers to reimagine mobile banking.”  Citi wants to give developers the opportunity and tools to solve financial problems and change the way people everywhere bank.

In September, the Danish multi-asset trading and investment firm Saxo Bank announced that it would open access to its trading infrastructure with the launch of OpenAPI. There are plenty more examples, but the questions is remains:  While the changes are surely coming, are they coming fast enough?

The very idea of granting access to an institution’s most prized assets—a basic tenet of API-driven advancements—makes many in the industry queasy. Compliance is a major factor too: There’s a welter of regulatory mandates to ensure data security, and opening up the vaults seems to invite problems and subsequent litigation.  That’s why it could be argued that while there’s been some action, there’s the potential for a lot more.

Many companies, particularly on the technology side, are stepping up. The newest of these is #FintechRevolution API Ecosystem, an industry-wide initiative that connects fintech developers with best-of-breed financial APIs. Championed and promoted by Xignite, a provider of market data cloud APIs, the initiative already boasts support from 21 vendors that provide workflow, analytics and data APIs. The goal is to inspire a new generation of financial applications, specifically by assembling the best APIs in each market category. The members have committed to sharing research and data, marketing best practices, and joint events.

While this kind of ‘coopetiton’ is old hat for the technology industry, it’s still uncomfortable for some in finance. It’s the concept of ‘open’ that stands as an obstacle—it flies in the face of tradition in an industry that has built its reputation on stability and security. But there has already been headway in other markets: Check out the Open Bank Project, which foster the maxim of “transparency as an asset.” The goal here is to serve as an open source API and app store, in this case mainly for German banks, to support initiatives to rapidly enhance their digital offerings through an ecosystem of third-party applications and services.

AP-enabled innovation isn’t a fad; it represents a new way of leveraging existing assets, not diluting their value. Moving forward, it could even support changes in business models, such as from full-fledged investment services to individual offerings.

A year from now, how different will things be? How many financial services institutions that currently don’t have API programs will be knee-deep into them going into 2017? It’s an open-ended question, just as this field deserves.

Written by Jack Dougal

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