Embracing disruption – the case for Open Banking API’s

The ‘catchcry’ for FinSaaS.io is “Financial innovation enabled through API’s”, and whilst we are determined to stick to the view that Financial Services is more than just Banking, there is no denying that Banking dominates the Financial landscape. Debates continue between the banking industry and FinTech in relation to opening access to customer data. This blog article reviews this debate and provides an opportunity for banking organisations to ‘embrace disruption’.

Australian banks have put forward a position that providing Open API’s would expose customers to privacy and security concerns. Whilst these are definitely concerns, there are common solutions to solve these problems that Banks themselves employ, including implementing an API gateway. However its pretty obvious that Banks really aren’t that concerned about this risk, otherwise they wouldn’t expose any API’s to the internet at all, and wouldn’t offer services such as Mobile App’s (which use API’s to expose customer data). Don’t get me wrong, security and privacy are definitely big issues that need to be managed, however that really isn’t the issue here. The issue is fear of disruption from new entrants to the market and ultimately losing control!

Disruption can be viewed in two ways, either as a threat or as an opportunity.

So what is the solution, embrace disruption and take a typical ‘banking approach’ to the issue. What do we mean by ‘banking approach’, well when you think about a lot of the tradition services that banks offer they involve making a market, such as taking a deposit from party A and offering a loan to party B. Banks make a margin by doing so and this drives their core business, with many peripheral services offered to customers to maintain a whole of customer relationship. Ok so how can this be applied to Open API’s and embracing disruption from FinTech? The heart of the suggestion is kind of simple, and doesn’t need involve anything to do with setting up a corporate VC fund and investing in FinTech (although these are approaches many banks are taking)!

Embracing disruption = being part of the ‘supply chain’ and being rewarded for the service. To banks this may take a few forms;

• Parterning with FinTech and selling access to enable FinTech to engage with a Bank’s customers
• Monitization of API’s (both to their customers and FinTech’s)

Whilst this may mean that banks may lose some business and revenue to FinTech’s, the benefit here is that they won’t loose all of their revenue and become irrelevant! The truth is that its a two way relationship, banks have something that FinTech’s need and as FinTech may start to take over market share there then this may prove to be a future source of revenue. No doubt if some innovative banks become market leaders in this approach they will start to be the banking partner of choice and there is definitely benefits of being first to the race. There is no denying that FinTech isn’t going anywhere, their strength is only getting stronger, so banks really only have two options; reject disruption and potentially lose market share, or embrace disruption and tap into a new source of revenue.

Thanks for reading

FinSaaS.io