How will Open APIs impact the banking industry?

While the Open Application Programming Interfaces (APIs) economy assimilates itself into the financial industry, banks have already started reaping the opportunities that have since emerged. API, foundationally, enables third-party developers to build applications and services around financial institutions. It facilitates greater financial transparency and helps financial institutions to innovate and create new and tailored services for its customers. With changing regulatory mandates, open banking has been gaining significant momentum across the globe and Singapore is no exception.

What are the benefits of Open API?

  1. Data sharing

The introduction of API within the banking service enables both customers and businesses the freedom to access all banking data in real-time. It provides them with more accurate and up to date information on their finances. Additionally, customers would be able to draw a clear comparison and reap greater savings. They would also be able to have access to more personalised resources for making sturdier and better banking decisions.

  1. The establishment of a new bespoke payments’ service

It all boils down to recognising and engaging customers at a personal level and providing a bespoke experience matched to each individual. Organisations that are able to collect and analyse customer data create the best place to thrive. Open banking gives financial services access to more information about customers to make a more compelling experience where possible.

  1. Collaboration between banks and fintech

Open APIs enable fintech companies to access bank data and functionalities, bringing a great change within the digital banking ecosystem. This will bring forth potential collaborations within the financial sector. More importantly, it will also bring about agile processes, and cultivate a culture for innovation with much needed technological expertise that the fintech sector can provide.  

While digital developers are becoming faster at building suitable integrations with traditional banks using open APIs, they lack the knowledge on business and regulatory compliance. On the other hand, traditional banks still need to take full accountability of all security and compliance issues that are likely to arise. Hence, encouraging collaborations between fintech organisations and traditional banks may be a solution to bridge this knowledge gap.

  1. Increasing digital revenue

Increasing digital revenue is crucial for banks to gain a competitive edge, especially amongst the bigger players. This is already an existing reality in Europe, where member states are obliged to abide by Payments Services Directive (PSD2) regulatory standards since the start of 2018. This regulation aims to increase competition within the financial industry by requiring European banks to release Open Banking APIs in order to provide Account Information Service Providers (AISPs) and Payment Service Providers (PSPs) access to customers’ information such as account balance.

The Monetary Authority of Singapore and Singapore Association of Banks are also encouraging the development of industry-wide standards with its Finance-as-a-Service API Playbook. The playbook serves as an affirmation for banks and fintech companies that have already begun to open their APIs as well as an encouragement to those who have yet to do so.

 

Which banks are on the Open API bandwagon?

OCBC – First in SEA to launch Open API

OCBC was the first in South-east Asia to launch an open API platform. This allows third-party software developers to integrate OCBC's APIs - lines of code used to build software and applications - into their own applications.

OneTouch, is an example of a service that allows mobile banking app users to check their bank balances, latest transactions and a credit card overview with their fingerprint on their smartphones, without having to log in.

DBS Bank – World’s largest API Platform

DBS Bank launched DBS IDEAL, a service that allowed small businesses, including start-ups and Small and Medium Enterprises (SMEs), to send payment instructions directly from Xero to their DBS IDEAL internet banking account instead of entering them manually. The service is available to all Xero Singapore customers who have an active DBS Singapore bank feed that is using a DBS IDEAL account. The service is currently only available for bills in Singapore dollars. With the new API-driven banking service, payments can be initiated on Xero and approved through the bank’s corporate internet banking platforms.

What are the concerns of Open API?

Increased risks of cyberattacks

Banks that are keen on being fintech-friendly naturally seek to invest in technology at a faster pace. However, this rush to jump onto the bandwagon too makes them vulnerable to several issues.

Cyber threats are more sophisticated today than ever and are engineered to steal data and cause service disruptions to organisations. Exposing thousands of APIs by opening banks up without rigorous quality checks can impose huge risks. Testing and verification of Open APIs would also take a much higher quantum of effort compared to the development of these APIs.

Data scientists, developers and testers in the field would need to ensure that they are aware of the levels of data encryption and access methodologies that are used to control data sharing amongst API customers.

How will this impact talent search and recruitment?

As open APIs begin to gain traction as a transformative technology in Singapore’s banking sector, the competition to find the best developers, data scientists, testers and cybersecurity specialists would only grow to be stiffer. In 2018, banks are predicted to go further than what regulation dictates. This is in hopes to foster more cooperation, collaboration, and innovation with agile fintech firms. If you are looking to gain a better understanding of the limited talent in this market or a head-start to equip your organisation with one of the best talent available, do connect with Vishnu SM. You may also follow us on our LinkedIn page for other industry updates.

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