API aggregators key to PSD2 success
An API aggregator (also referred to as “API Hub”) is an API on top of several different APIs. It provides a single point of implementation and delivers a unique and standardized API regardless of what APIs or services it integrates with.
It’s been a few days since January 13. A few countries have transposed the European directive into local legislation and a few more banks have released their developer portal, sandbox and documentation. Looking at the few currently available APIs, we can already draw a few conclusions.
Update 23/06/2020: We have recently published an article showing how Ponto, our new product, helps companies automate their business processes thanks to PSD2.
No two APIs are built the same
Over the past few months, we have received several questions about our message format, its compliance with market standards such as ISO20022 and currently available open specifications (Berlin Group, Paris Group, PolishAPI, Open Banking UK,…). In our opinion the message in itself is probably the easiest thing to integrate in an API, regardless of its format. Every decent programming language will let you parse text quite easily and efficiently. Whether it is in a JSON or XML structure (or even something else) does not matter.
On the other hand, several other traits of an API can either make the lives of developers easy or a living hell.
- Authentication model of the API
- Pagination model (in list of account transactions for instance)
- Proper use of HTTP verbs and status codes
- Error handling (clear and straightforward)
- Developer onboarding process
What you can see today, looking at all APIs already available, is that for all or some of those specific characteristics, no two banks are similar.
Some banks provide a sandbox and allow you to access real data with the flip of a switch while some others require that you connect to a specific and separate environment, etc…
This makes integration to many banks more difficult for developers. API aggregators abstract that complexity by proposing only one clean API. Implement it once and support all currently (and future) supported banks.
Third party providers want to focus on their added value
Most companies reaching out to us on PSD2 today are from many different fields: insurance brokers, credit institutions, accounting packages, software agencies, … All of them want to process account information or initiate payments to deliver more value to their own customers.
Most TPPs that reached out to us do not want to bear the costs of integrating with dozens or hundreds of APIs. Even banks themselves are releasing requests for proposals on API aggregation projects as this article is being written, in order to become TPPs themselves. Some of those TPPs will carry out this implementation effort themselves of course, possibly some of the largest ones, but there are lots of TPPs out there, looking for easy access to many banks with one single integration.
Without API aggregators, PSD2 may very well end up favoring the largest TPPs that are already present on the market today and still making it too difficult for new players to get in the game. To be ambitious and international from the start, these new players would need to invest massively in bank integrations. API aggregators can help them quickly get started and reach a European market from day one.
Smaller banks may be the big losers of that fragmentation
Let’s put ourselves in the shoes of a TPP. I have limited funds that I want to spend on integration and I want to maximize my market reach. My strategy is going to be very simple: focus on the large banks.
In Belgium, integrating the four largest banks will give you access to the large majority of the market, estimated at around 80%. Add four more integrations with mid-tier banks and the best you can reach is 10% more. As a result, smaller banks risk being shadowed by large ones and ignored by TPPs.
The main risk is that if great products come out on the market that does not support smaller banks, customers of those smaller banks may move their assets to another bank to benefit from these new services. Of course, it is all speculation and nobody can truly predict the future. It is clear that PSD2 adoption will not happen overnight.
In the end, what was supposed to bring more competition on the market may very well simplify the banking ecosystem in favor of large banking groups and large TPPs.
In order to stay relevant in a post-PSD2 world, smaller banks should be proactive by being integrated in an API aggregator in order to benefit from a larger TPP reach. That way, they can avoid increasing churn in their customer base and develop new innovative products and services by acting as a TPP on the API aggregator themselves.
API Aggregators are matchmakers in the PSD2 landscape
An API is roughly a communication protocol and series of messages used by two information systems to interact with each other. As such, it is easy to consider the consumer of an API as another piece of software. That is of course if you don’t take into consideration the person that will need to make that interaction possible, the software developer. They are the ones building new products and services for the bank’s customers.
If you look at the software developers as the true consumers of an API, which they are, then you need to cater for their needs and make sure your API is following the best quality standards that software developers like. It means that as a bank, you now have a new distribution channel, with a new kind of partner, the software developer. Are banks equipped to reach and capture their attention? Some are, but a large majority are still trying to figure it out.
API aggregators usually have a strong developer-centric mindset and know what needs to be done to attract them. Banks, by partnering up with API aggregators, can start building their community and reach out to potential future partners without making the initial investment themselves.
API Aggregators are PSD2 enablers
PSD2 bears great promises. To reach its objectives, we must prevent that the complexity of integration kills it.
API aggregators help PSD2 succeed by:
- Providing a single secure interface to several banks, lowering the workload of onboarding and supporting TPPs for them.
- Providing international bank reach to TPPs in one single integration so they can compete on a larger market from the start.
- Acting as a matchmaker between banks and the TPP ecosystem to accelerate partnerships.
- Providing visibility and TPP reach to smaller banks with a future-proof digital strategy.
Want to know more about our API aggregation services? Reach out to us at info@ibanity.com or through our website https://ibanity.com
