Open API for ‘Open’ Banking

Jun 1, 2017

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Open API is shaking up the conservative banking sector.

In the past, it was sufficient for banks to be present just with their branches and a homepage on the Internet. Meanwhile, the world has changed. Open API enables even small providers (e.g., numerous FinTech-Startups) to offer their products and services on the Internet and integrate cooperation partners.

What is Open API?

In contrast to a private API, open API is freely available application programming interface for all developers. It enables developers outside of your business to access backend data that can then be used to enhance their own applications. In the simplest terms, an API allows one piece of software to interact with another one.

Open APIs can increase revenue without investing in new developers, so it makes the software very profitable. However, it is important to remember that opening backend can create a range of security and management challenges.

Open APIs in Business

Open APIs can be used by businesses seeking to leverage the ever-growing community of freelancing developers who have the ability to create innovative applications that add value to their core business. Businesses often tailor their APIs to target specific developer audiences that they feel will be most effective in creating valuable new applications. However, an API can significantly diminish an application’s functionality if it is overloaded with features.

Open API examples

Various eco-systems like Apple, Amazon, Google, facebook and others are already setting the tone.

For example, facebook provides open API that enables third-party tools to create photo albums or post to a user’s news feed. In fact, facebook has a built-in function that allows the items you add publicly to your news feed to be concurrently posted to your Twitter feed. In that case, the facebook application is actually using the open API from Twitter to make that interaction happen. The rise of Twitter illustrates the benefits of open APIs, along with the potential drawbacks. When Twitter started, it provided a text-only format and a rudimentary web-based interface.

Many software products also come with an open API, allowing programmatic access to the data they contain. For example, Microsoft’s SharePoint collaboration platform provides a REST API that allows access to the FAST Search service.

Open API in banking

In order to stay innovative and competitive on the market, there is no way for banks to avoid the application of open API.

Some banks, for example, Credit Agricole in France or Leumi Bank in Israel have already ‘opened’ their interfaces. German Fidor Bank also relies on the technology of open API.

Besides, there are several FinTech-Startups helping financial institutions to enhance their digital offerings using eco-systems of third party applications and services.

In the UK the expansion of open API in the banking sector is strongly supported by the government (see Call for evidence on data sharing and open data in banking).

The second Payment Services Directive (PSD2) obligates banks in the EU to provide third-parties access to their customers’ accounts through open APIs.

In fact, the key objective of a customer-oriented business world is client satisfaction.

Open API provides banks with a great chance to achieve this goal.