Change is needed
However, before banks even think of opening up their systems to newcomers, they need to first untangle their old and inefficient infrastructure and streamline their core banking processes. Each API should then be designed to sync up with the core architecture.
The problem at the moment is that every bank is defining its own set of APIs, thereby hampering connectivity, easy integration and openness, which sort of defeats the purpose. There is currently no universally adopted reference model or taxonomy to lay out clear standard definitions for all the various banking business functions. Without this, it’s almost impossible for banks to visualise the different information flows within all the banking capabilities within their model, let alone how these are connected and which should be taken up for API enablement.
Following on from this conversation, banks will then also need to decide whether to keep these various business capabilities in-house, or simply consume them off the cloud as and when required.
Without clear sight of what they have in play at the moment, how can they possibly move ahead? A global standard and model for API development will be crucial in taking this innovation forward and allowing banks to realise their full potential.
A global agenda
PSD2 is a European directive, though I hope that it will be the prompt that the international banking arena needs to start really looking at these challenges on a global scale, and in earnest. Rather than waiting to see whether the regulation itself travels beyond Europe, banks outside of this jurisdiction should address the opportunities presented by open APIs today. Regulatory push apart, there are strong business compulsions for bringing about standardisation and interoperability among APIs en route to open banking.
Aside from the ‘building block’ approach to innovation that this technology affords, there is a huge opportunity for banks to start embracing partners from overseas. The problem of tangled and complex systems through years of layering on technology products is by no means limited to Europe. This issue is particularly prevalent for Islamic banks for instance, which have traditionally developed tailored, in-house banking technology systems to ensure they comply with Shar’iah, Islamic legal code.