APIs act as collaborative glue to link stakeholders in the new payments ecosystem

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Open application programming interfaces (APIs) are fundamentally transforming payments business models by facilitating flexible, user-friendly, and tailored service propositions.

Open APIs are publicly-available interfaces that link new-age payments players to incumbents’ proprietary software or web services to gives them the ability to focus on customer-facing, front-end activities within the value chain.

Regulatory initiatives such as the Revised Payment Service Directive (PSD2) in Europe and Competition and Markets Authority (CMA) in the UK are forcing banks to open their systems and data to third-party providers (TPPs).

The result? Agile new entrants are challenging the core competencies of established banks.

So, it is no surprise that incumbents are working to reposition themselves to remain relevant. However, legacy infrastructure, regulatory scrutiny, and a rather low technological appetite are impediments to change. All this while new market entrants, such as FinTechs and BigTechs, are competitively leveraging their API to offer substantial value.

Up until now, API implementation has been a back-end success story for banks in terms of internal efficiency and scalability. Finally, incumbents are ready to consider collaboration with TPPs and developers and explore APIs for front-end transformation and a customer experience makeover.

Through collaboration, both banks and TPPs can reap mutual benefits by capitalizing on their mutually-exclusive strengths. Business strategy alignment and seamless system integration are the bedrock of successful partnerships, and APIs can be critical collaborative tools.

How do APIs support payments stakeholders?

  • Data or services can be distributed through new channels and devices– IoT thereby offering an enhanced customer experience
  • Banks can develop new products and services in addition to extending existing services through the API marketplace
  • Emerging technologies such as AI can enhance API functionality through efficient integration of back-end infrastructure and front-end interfaces
  • Systems can be made available for third-party developers to build their own applications and services to encourage open banking.

APIs act as the critical glue within the new payments ecosystem

APIs and new payment system

Source: Capgemini Financial Services Analysis, 2018

Globally, incumbents have implemented API initiatives on multiple fronts, and several banks have made their systems and data accessible to external developers via APIs. A recent developments snapshot includes:

  • Spanish bank BBVA kicked off its open banking program by making eight of its APIs commercially available to TPPs so that companies, startups, and developers can build products and services by accessing and integrating BBVA customers’ banking data – with their permission – into their banking apps.[1]
  • Capital One’s DevExchange is a repository for tools and APIs to enable developers to use the financial institution’s software-building resources to create highly-personalized products and better customer experiences. DevExchange allows participants to engage in instant app development, approval, and rollout.[2]
  • Mastercard and Visa have launched API stores that enable activities beyond credit card validation and authorization.
    • Visa’s developer suite contains API-enabled micro-transactions, wish lists, and shopping carts.[3]
    • Mastercard is developing a payment app that leverages conversational commerce APIs.[4]

Several Bank-FinTech partnerships are taking payments industry collaboration to the next level by disrupting the marketplace with a variety of cooperative projects.

For instance, Van Lanschot, the oldest independent bank in the Netherlands, uses the Fidor OS platform (built using open APIs). Now, the bank offers a range of payment services including peer-to-peer transfers and iDEAL payments, an e-commerce system that allows customers in the Netherlands to make internet purchases using direct online transfers from their bank account.[5]

Fifth Third Bank, a US regional banking corporation headquartered in Cincinnati, Ohio, strategically partnered with Intellect Global Transaction Banking (iGTB), to develop digital projects using APIs that incorporate machine learning and predictive analytics.[6]

The rise of the open API economy is strengthening the role of other non-traditional players too (aside from FinTechs) including GAFA tech giants and retailers such as Walmart and Tesco that slowly but surely are disintermediating the payments value chain.

Therefore, it is vital for banks to offer platform-based services that foster a wider ecosystem of third parties. Through platformification and a modular approach, banks can establish a well-orchestrated ecosystem of services and emerge as ultimate winners in the open API economy.

To learn more, feel free to get in touch with me on social media.

[1] BBVA website, “BBVA Launches Its Open Banking Business,” Chris Semple and Luz Fernández Espinosa, May 24, 2017, https://www.bbva.com/en/bbva-launches-open-banking-business.

[2] Capital One, “Capital One DevExchange,” https://developer.capitalone.com, accessed March 2019.

[3] InfoQ, “Visa Launches Visa Developer Suite of APIs,” Benjamin Young, February 16, 2016, https://www.infoq.com/news/2016/02/visa-developer-suite.

[4] Bank Innovation, “Mastercard API for Conversational Commerce Still in the Works,” June 2018, https://bankinnovation.net/2018/06/mastercard-api-for-conversational-commerce-still-in-the-works.

[5] Van Lanschot website press release, “Fidor partners with Van Lanschot in the Netherlands to create the first PSD2-inspired Payment Avenue,” March 9, 2017, https://www.vanlanschotkempen.com/en/news/press-releases/2017-03-09-fidor-partners-with-van-lanschot-in-the-netherlands

[6] American Banker, “Fifth Third adds new fintech partner to enhance service for corporate clients,” Nathan DiCamillo, May 31, 2018, https://www.americanbanker.com/news/fifth-third-partners-with-banking-technology-platform

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