The government is to “call for evidence” on banking APIs, but I think the evidence is pretty clear: they are going to play a major role in shaping the industry over the next 3-5 years whether the government does anything about them or not.
One of the hot topics that we talked about a lot last year was APIs. Now the government is getting involved
The UK Government is to launch a ‘Call for Evidence’ on how APIs could be used in banking to improve transparency and help customers compare financial services providers.[From Finextra: UK Government issues call to action on bank APIs]
This was widely reported as being new and interesting when it’s nothing of the sort. In fact, this was announced six months ago when the FSA announced a feasibility study into bank APIs.
The FSA’s initiative comes as the UK Government re-affirmed its committment to breaking down barriers to entry for firms using innovative products and technology to challenge the established banking industry. This includes encouragement of peer-to-peer lending, opening up access to SME data and commissioning a feasibility study into the use of APIs for providing third party access to bank data.[From Finextra: FCA to foster fintech innovation; Treasury pushes P2P, APIs and virtual currency]
You can download the feasibility study from the Treasury web site — I’ve not read it in great detail yet and I’ll have another look on my next plane journey but the technical recommendations (JSON/REST, OAuth 2.0 and so on) seem in the right ballpark to me — but I can’t help feeling that the “call for action” as described is a bit trivial. If you want to download your bank account data so that you can send it to Go Compare, the HMRC or Eastern European fraudsters, then you can just download it as a CSV or whatever. You don’t need an API to do that, as the FCA feasibility study pointed out. Their comparison table (in section 3.2) rightly shows APIs to be more flexible and offer additional functionality over static file download, but without transactional capabilities that may not matter.
So what should APIs be used for? Transactions! I wrote about all of this pretty extensively last year as a reflection on some of the work that Consult Hyperion had been doing for financial services clients.
It’s important to understand why APIs are so strategically important, not only in the payment space but in the financial sector as a whole.[From API Blast part 1: PSD, XS2A, TPPs and PSPs]
As a rule I don’t like providing free consultancy to government departments, but I suppose we will put together a Consult Hyperion response when the call for evidence is published. And, of course, I’ll put it on the blog. But my first thoughts are that we need to look from four distinct perspectives in order to build up a view of what is required in terms of the specific action from the Government, if anything.
The first is the government’s vision for innovation around banking. I’m pretty sure it doesn’t have one, but if it decides to develop one, then I would suggest that the idea put forward on this blog might be a starting point.
Maybe the new paradigm will be the bank as facilitator of innovation rather than innovator. Maybe we want banks to be boring and efficient.[From What is the right innovation paradigm around banking?]
The second is the European regulatory environment. The Treasury may not be aware of this, but there is provision for mandatory API access to bank accounts in the pipeline (the “XS2A” provisions) irrespective of whether the UK government think it is a good idea or not.
The third is the business case for investment by banks in opening up their data. Now, as I last year, I think banks should be adopting an “amazonisation” strategy so the business case is not simply about providing data to customers, it is also about using data more effectively within banks.
The point about the amazonisation strategy, as Uday touched on, is that it means shifting to components and networks and APIs connecting everything in an organisation, not simply adding an API layer on top of customer interfaces.[From Time and amazonisation in payments]
The fourth is the technology roadmap for financial services APIs. Without getting too much into this, I have a suspicion that the API infrastructure will need an identity infrastructure, and this may be the opportunity for banks to turn a potential negative (providing customer data to competitors) into a positive, because the infrastructure developed to support the “euro-API” could be used to stimulate other business opportunities.
Could the bank be the ideal partner to implement what Greg Meyer calls “The API of Me”[From API Blast part 2: ECB, EBA and DAG]
Irrespective of what the Treasury may say, I think that the evidence is clear: banks who see APIs as something technological, some geekery in the IT Department’s domain and obscure technical decisions removed from the business are dead wrong. APIs are business strategy, not a technology strategy. They should be central to banks’ strategies and they will play a huge role in shaping competition in the sector for some time, but I wouldn’t have thought that they are the only way to give customers their own data so that they can compare credit cards or mortgages or whatever.