Open-Mindedness and Open APIs Are Both Necessary for Success in the Open Banking Era
Rachel Hunt: Banks are investigating the pathways toward ‘Open.’ Whether driven by regulation, or the need to compete in the New Payments Ecosystem, one of the questions often contemplated is: “Will this help deliver better customer services?” But often the first hurdle is how to prepare the organization. So, Mark, first up, how can the banks prepare for this open philosophy?
Mark Ranta: Well you have two sides to this story. The technical side, in other words the underlying infrastructure, and the organizational mentality required. Let’s address the technical side first. How do banks prepare for a digital ecosystem and pivot from a very bank-centric, product-oriented environment to systems that can be broken down to individual services? There are thousands of options, but there is a prevailing way that seems to be gaining consensus. It involves focusing on a middleware layer that allows banks to disconnect small pieces here and there and connect into the New Payments Ecosystem, while isolating their core infrastructure from disruption.
How can this be achieved? First look at underlying systems and make sure they are capable; i.e. they can adapt to the real-time, 24×7 reality of today’s payment and banking services. Second, you need to choose the bits and bytes you want to expose, and the order in which you want to expose them. But as I mentioned, there is also an important organizational shift required, but I’ll let Lu talk a bit more about this.
Lu Zurawski: Yes, it’s an important piece of the puzzle. I have a favorite saying; APIs are a technology, whereas the concept of Open APIs is more a state of mind, or a philosophy. Embracing and preparing for a digital and open ecosystem is not just about learning the latest techniques. There is genuinely a new mindset needed, specifically around collaborating with potential partners, seeking out relationships with these partners, and embracing the open mentality. You have to recognize the positives and the potential in exposing services to potential partners in a way that is discoverable and easily accessible. This is a philosophy based on how an organization and its partners can collectively design new customer propositions, which could not be achieved individually.
Getting into that mindset is quite a big leap, and the only way to jump is to start playing; talk with your technology and business partners, and engage in work groups and industry initiatives – there are quite a few in the open banking world. And they are not limited to regulatory-type initiatives, such as the second Payment Services Directive (PSD2) in Europe, either. This spirit of open banking collaboration is happening globally.
MR: That last point on bringing parts of the ecosystems together to create new value propositions requires a fresh look at the broader banking landscape, and how it can create opportunities for new services. It’s not ‘just’ replacing a legacy system or launching products with a slight upgrade or twist. It is creating a net new value proposition based on a net new experience. The ability to deliver this, or the way in which you achieve a return on investment, is very different.
RH: On that point, do you think this new philosophy will impact banks’ ability to innovate rapidly?
MR: It is not just the bank, it is the whole New Payments Ecosystem that will innovate. Banks have to think beyond their traditional business models, service offerings and innovation cycles. When you force the industry to think beyond the payment transaction, it starts to create interesting value propositions. The whole is greater than the sum of its parts, right?
RH: And it is bigger than just ‘open;’ people are also talking about digital transformation, immediate payments… is it correct to see these trends as interlinked?
LZ: In the way people engage in everyday life – whether it is in commercial or social interactions – there is a clear trend toward a digital, always-on experience. If we look at this through the lens of banking and payments, it’s obvious that there is an expectation that real-time for financial transactions or services accompany these experiences. However, banking and payment systems predate all these digital interactions. Card payments predate the evolution of online commerce. Clearly, the card industry has done a great job in keeping up to date, with various layers of security adapted to online, card-not-present (CNP) transactions, but current digital experiences require more than work-arounds, if we are to maintain the foundations and enable innovation. Therefore, we are seeing emerging technologies, including real-time payments and Open APIs, that are geared toward opening up access to accounts and the broader ecosystem. They are ‘digital native’ technologies, so to speak.
RH: Mark, are we adding complexity to a bank’s payments architecture, or is this an opportunity to simplify?
MR: Well, we are adding complexity, but we are also simplifying! For the past fifty years, we’ve been undergoing a technological revolution, but as we introduce new digital services, we also add more silos and integration layers. Today, as we try and break the bank up into smaller service components, we are also adding a different kind of complexity. Big, monolithic silos can be broken up into sometimes thousands of individual service components. Think of it as a Lego set; we currently have many houses built on our green Lego base. Over time, they have grown into large buildings. What many banks are trying to do now is break down these buildings to their individual block components, and rebuild them with a simpler and cleaner architecture. There are endless configurations, and it’s up to each individual bank. Ultimately, you have the same number of pieces you started with, but in being rebuilt they are displayed and connected in a completely new way.
LZ: And THAT is the basis of the open philosophy: It is forcing banks and processors to rethink what individual building blocks look like when seen by the New Payments Ecosystem community. This philosophy is about saying, “OK, I need to think about architecture that it is easily accessible and consumable by my wider partner community.” The complexity lies the project, not the technology itself. Stripping back to those individual building blocks orchestrating the internal ecosystem with Open APIs will be simpler, but it feels counterintuitive in a banking context where usually ‘redesign’ means ‘adding complexity.’ But, with open banking, the redesign itself simplifies the business. That is the easy part, though it can be a painful process to get there!
Discover more about the turning open payments into opportunity: Watch the video with Lu Zuwaski
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