Challenges and opportunities that APIs bring to the Financial Industry

A few days ago, SWIFT has published a White Paper that discusses challenges and opportunities that Application Programming Interfaces (APIs) pose for Financial Institutions. Below is my summary of key points and conclusions. The full White Paper can be found here https://goo.gl/z2udb3 and is an interesting read.

APIs are transforming the way business is done. The underlying technologies, “Web APIs,” are a simple way for one business to access the business value of another to create new value. A few examples that we all know include Uber, Trivago, Expedia or Airbnb.

The financial services industry has been late to adopt APIs but is catching up fast, encouraged by regulation such as PSD2 and UK Open Banking, and by pressure from customers to provide more convenient ways to access banking services.

Together with related developments in cloud computing, API-based software systems create significant opportunities to mutualise operations and IT systems, and to outsource non-core or non-differentiating services to trusted partners.

APIs can improve the agility and reduce the cost of internal IT, provide new opportunities to monetise existing business capabilities, and enable transformative new ecosystems and business models. But as the financial system reconfigures itself around these new models and invites new participants, end-to-end transactions become increasingly complex. This presents challenges that must be met if the technology is to fulfill its potential for the financial services industry. Key challenges include Fragmentation, differences or inconsistencies between regulatory specifications in different markets, different identity solutions, security and data protection and inconsistent data representation among different API publishers.

In addition, many of today’s financial back offices must be re-engineered to be able to work with APIs in a flexible, agile and customer-centric way.

There are established best practices for designing and implementing APIs. These are well-supported by existing tools and widely used by developers. Until now, however, there has been no real concerted attempt to apply existing financial business standards to these toolsets and practices.

An idea that could solve many issues is a marketplace for API services that interact with critical financial data.  However, a standard platform would be needed to provide a consistent, robust, and secure global platform for designing, testing, and accessing high-value services. To scale, the platform must not only be able to reach every key player in the financial ecosystem, it must also guarantee the identity of these players with absolute certainty.

The conclusion of the White Paper is that the time is right to invest in APIs to address the challenges the Financial Industry faces, however investment will be needed both at the institutional and at the industry level.