After months of getting ready and preparing to comply with the new rules, the year of Open Banking is finally here. Europe sets out into the new year with the enforcement of PSD2, at the core of which is the requirement for banks to facilitate secure customer data access to third-party providers. This puts APIs right at the center of the Open Banking dream, as simple interfaces that can facilitate data exchange. Regulations the world over are fostering and encouraging API-led innovation. Even in regions where it is not a regulatory requirement yet, banks and financial services providers are proactively taking the plunge into the API economy.
Banks that have already launched their API stores, have somewhere between 5 to 50 APIs. For example, RBL Developer Portal owned about 40 APIs some of which were publicly available, and Citibank Developer Community reported to have 49 APIs. In 2018, we expect a lot more banks launching their API stores.
As banks look to cultivate rich ecosystems and platforms, we predict this trend to grow stronger and more diverse in nature. This year, APIs will increase in breadth as well as depth i.e. not only will we see more APIs allowing digital firms, FinTechs and other developers to build real world applications but also more APIs with production data. Most banks currently have APIs running in sandbox environment with dummy data. Heading into 2018, this will change as banks will have made sufficient progress to develop the necessary governance mechanism to take their APIs live with production data.
The rise of APIs has heralded creative disruption in the financial services industry, of which the payments space has seen the maximum action and shows no signs of slowing down. Leading communication chat services are now gearing up to enter the space. In India, Whatsapp has approached SBI, HDFC and ICICI bank for a proof of concept1, and it’s only a matter of time before Whatsapp payment API is extended to a wider ecosystem. Similarly, Google is also integrating payment APIs in Chrome browser2. These developments will lead to an exponential increase in the number of transactions taking place on mobile devices, and a growing challenge before banks and financial service providers in 2018 will be to scale their systems to be able to address the huge transaction volumes of the API economy. What’s more, in the new year we will see API innovation going beyond payments, wallets, and P2P transfers to areas such as corporate lending, corporate deposits, mortgages and loans. In 2018, banks will further increase their collaboration with non-banking partners in that they will not just be a provider of APIs, but also a consumer of APIs from other ecosystem players. The next generation of banking experience will not only be the result of an engaged developer community creating applications using bank APIs, but also banks using external APIs to enhance their offerings and expand their reach. We will also witness a growing trend towards combination of the right APIs to create applications relevant to the customer.
And finally, the shift from sandbox to production environment will lead to monetization becoming an important agenda. In 2018, business models around APIs will come into sharper focus. A Bengaluru based start-up MoneyTap in a revenue sharing agreement with RBL Bank uses the bank’s APIs to offer loans to India’s young urban lower middle income group lacking credible credit history that banks and financial institutions demand. The company’s product called ‘credit line’ is a flexible borrowing option that allows customers to choose their plan and EMI. The free app evaluates a user’s credit and loan amount the user is eligible for in less than 10 minutes. The customer is charged a small fee at the time of approval, usual interest fees and processing fees every time the customer borrows. More such models will take shape in 2018 and beyond.
The year 2018 will officially usher banking in the API economy. And clearly with shrinking margins and unprecedented competition, ‘participate or peril’ is the writing on the wall for banks and financial institutions.