According to Gartner*, banks should be banking on application programming interfaces (APIs) and Apps and not applications; the argument is that application portfolios are preventing banks from achieving the transformation necessary to re-engage with customers and stakeholders.
They also recommend that banks stop relying on reactive product delivery and start providing a delivery model using public and private Web APIs and apps. Such an approach, they argue, will enable banks to deliver needs-based services that are relevant to the context, location, and technology, being used by customers. This in turn will lead to proactive delivery that anticipates customer needs.
Retiring redundant, monolithic applications is necessary to improve agility and efficiency, but also to prevent out-of-control complexity that can be exacerbated by the proliferation of apps. If a bank already has substantial application redundancy it will not be able to improve agility or efficiency by adding apps and APIs into the mix.
Gartner analysts say the biggest barrier to banking on APIs and apps is not technology. Security, scalability, performance, complexity, regulatory compliance, and integration are cited as issues that can be managed through careful IT governance, extreme reuse, service-oriented architecture governance, API management, and other best practices and technologies. Other barriers are more operational in nature, such as the lack of a clearly defined design paradigm, governance model and accounting model. The biggest barrier to platforms that provide private and public web APIs and apps, is the loss of control, they say.
The Banking APIs, State of the Market reports** published in the four years prior to the 2018 report, are testament to the fact that regardless of industry sector, APIs are enabling faster product development, easier partner onboarding, more efficient internal processes, and the development of ecosystems.
Emerging regulations such as the European Second Payments Services Directive (PSD2) have also made it necessary for banks to carefully consider how to add APIs to their stack. It was noted that during the four-year period leading up to 2018, several waves of change had occurred. Initially, banking APIs were thought to be a technical consideration; then they became a regulatory requirement but eventually they realised that while they are all those things, importantly they hail an era of serious business opportunity.
The 2018 survey noted that the open banking market was still at the very start of its implementation with many banks only halfway through technical reorientation and legacy modernisation programmes. It is at this stage that the banks are said to have moved their strategic mindsets from seeing APIs as a technical issue.
In 2020 the UK is considered the leader in the application of Open Banking *** which was first implemented through the PSD2 and the Open Banking Standard of 2018. Since then different territories have begun adopting their own approaches with the concept really starting to gain traction internationally over the past year.
What’s the story with SA banks?
According to the PwC SA Major banks analysis**** published in March 2020, a decade of research on the country’s major banks has confirmed that the industry is always in a state of change, with technology a major contributor. The report outlines ten central themes and trends in the local market that have shaped the industry and the major banks in the country.
It cites several technology factors as major contributors to these trends. For example, the emergence of mobile banking apps as customers’ preferred choice of interaction has irrevocably changed the banking scenario. Ever-evolving customer needs and expectations are said to be driving product innovation, with the major banks making a strategic decision to broaden their offerings.
The report highlights that banks are also refreshing their IT stacks, which is triggering large-scale changes in response to security risks, unlocking efficiencies and digitising customer experiences. The progression of the risk landscape is driven by the emergence of cyber risks, third-party and vendor risks, climate, and sustainability risks, amongst others. Sustainability risks are also underscored as influencing credit policies and shareholder activism. Of course, regulatory change is ongoing, including migration to Basel III, IFRS 9 implementation and establishment of Twin Peaks.
Competition in the domestic banking market has been intensifying with an unprecedented number of new licence applications and the launch of three digital banks in the period under review. Transaction fees have been declining while deposit rates have risen. Rapid technological changes have given rise to in-house innovation efforts and external partnerships with niche fintech players in areas ranging from Artificial Intelligence, Robotic Process Automation, Cloud Computing and APIs.
So, it would appear, as with all industrial and economic growth globally, the banks that prove to be the most responsive to rapid technological change by embracing the tools needed to remain competitive in a customer-centric environment, will emerge the winners.
In my third and final article in this series of three, I will shed light what the future may hold due to the new banking platform.
*http://www.gartner.com/technology/symposium/barcelona/agenda/industry-2-finance.jsp. / https://www.itone.lu/actualites/gartner-says-banks-should-be-banking-apis-and-apps-not-applications
About the Author
Michael Brink was appointed CTO of CA Southern Africa in 2019, with responsibility for outlining the company’s technology vision, ensuring technological resources are aligned to the business needs, implementing strategies, and managing high-performance teams. A 20-year veteran of the technology industry, he has a track record of success in delivering transformative technology to the marketplace.