The “New Banking Platform” is driven by Application Performance Interfaces (APIs) that sit between a bank’s backend services and the front-end experiences provided by the bank plus third-party providers (TPPs). This new platform empowers banks to employ new business models, providing infrastructure for TPPs and new use cases, such as acting as a trusted identity and authentication provider for TPPs, while also adapting to emerging technology disruptors such as blockchain.
By leveraging an API-driven platform, banks can increase customer satisfaction, expand into new markets, future-proof their IT infrastructures and accelerate time to market of new products and services.
Compliance and regulatory directives are also driving the move to the New Banking Platform. In Europe, regulations such as the Payments Service Directive 2 (PSD2) and the General Data Protection Regulation (GDPR) are responsible, while in South Africa POPIA is delivering data privacy controls to the local market. As these protocols go from draft standards to required mandates, most banks and financial enterprises institutions will be forced to open up their data and capabilities to meet requirements.
Some banks will do so via the least amount of effort, creating an ad-hoc, single-use API, for example. But this will not enable them to scale that effort to comply with future regulations or create new product and service innovations. In South Africa, the process is already well underway. Nedbank, for example, launched an open banking API platform in the first quarter of 2019.
The objectives of these regulatory guidelines are to enhance consumer protection and convenience, improve the security of payment services and promote innovation and competition. However, the implications for payments industry participants are complex and broad.
The biggest impact for banks will be the strategic outcomes of having to make account data accessible to third parties at the request of customers, to support both account information and payment initiation.
Regulations – Attitude is everything.
Regulatory compliance needn’t be a source of stress; in fact, it could be an opportunity to support a broader larger digital transformation strategy by building a “New Banking Platform” around APIs.
Most financial services organisations today are focused on building an API strategy and/or platform and view the marketplace as a potential project for the future. Leading businesses in other industries, have proven that opening- up APIs to a partner community and monetising an API marketplace can lead to new and lucrative business opportunities.
One example is retail, where the exponential rise** of open commerce APIs reflects how the industry is looking for new ways to make use of their data and connect their systems. This will enable them to create great experiences for their customers and employees, drive new revenue channels, and gain competitive advantage.
In the banking sector, in addition to helping increase compliance, scalability, innovation and competitive advantage, this New Banking Platform empowers entirely new business models and use cases, which expand in scope and capabilities as banks increase their API maturity level.
Currently most banks are already capable of developing ad-hoc APIs, often driven by regulatory compliance constraints. These APIs digitise simple transactions such as balance checks, or transfers and make them available for third-party use.
Many banks have developed top-tier APIs with numerous capabilities and are integrating these with select and trusted partners. While the API itself enables the connection, the requisite SLA agreements, documentation, and support, must be managed “offline.”
Examples of APIs that extend bank services to trusted partners:
- Digital payments such as online, smartphone/wearables, IoT
- Transfers between institutions
- Account data and transactions made available in third-party applications e.g. personal finance sites or apps.
Some integrations have been hugely successful, and many banks are now looking to roll them out to a larger community of partners via a portal or marketplace offering basic capabilities to those wishing to create new use cases. They not only provide the backend for existing user experiences, but infrastructure for new ones as well, with standardised processes around SLAs, support and so on.
APIs that foster unlimited third-party connections, leading to the development of innovative, new products and services include loyalty programmes; peer-to-peer lending or transfers where banks act as a clearing house; and using the bank as a trusted identity/authentication service.
Furthermore, banks are more than capable of making deeper investments into creating innovative, new capabilities that deliver competitive advantage.
In conclusion, as banks move away from a transaction-based, monolithic configuration to a more customer-centric, approach, they’ll be better positioned to react to new regulations and digital market trends.
If they are to stay ahead of competitors and ever-evolving customer demands, banks must be able to deliver new, high-quality services faster than ever. By turning common functions like authentication, access control and risk management, into modular microservices, banks can homogenise and accelerate the deployment process and achieve economies of scale.
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.