“An effective, fair and transparent financial services sector is vital for economic growth and also for a functioning and healthy society. And that’s especially true when the industry itself has not always delivered its side of the bargain.” This past November, the recently ousted CEO of Barclays Antony Jenkins gave a talk on “Uber moments” that will disrupt the fintech sector. He foresees incumbent banks not being able to keep up the pace with new digital rivals
“I predict that the number of branches and people employed in the financial sector as we view it today may decline by as much as 50 percent over the next ten years,” Jenkins said.
Basically banking is at a sink or swim moment. And if you asked us a year ago, we’d probably bet on it being another Titanic. But in the last 12 months or even just six months, there’s been a sudden and surprisingly large cultural shift happening in the banking industry. Less than a year ago, it seemed unimaginable that now many banks are leveraging the application programming interface (API) to break away from the restrictive monolithic architecture and moving toward more agile ways to respond to customer demands more quickly.
The API is kind of the implementor in our online world. It’s what facilitates new components integrating with older ones, it’s what makes our phones smart, and it’s what’s connecting the entire Internet of Things. For the banking sector, which has some software dating back to the 80s, the API is implementing finally a breakaway from massive annual updates and breaking down into my composable pieces that can be released even a few times a week, all while preserving the necessary security that comes with banking.
The banking industry has been struggling with a bad rap especially since the 2008 banking crisis, but why the change now? “I think there has been a lot of bad press about banks and as a result banks have realized that they have to rebuild that trust with their customers and that brings them to customer-centric ideas,” Mark Boyd, researcher and author of a recently released white paper on the State of the Market of Banking APIs , told Blog ThinkBig. “Also there are a lot of fintech startups that are disrupting the banking industry especially around payments and banks are feeling a lot pressure to build up agility.”
Adding to the pressure forcing banking giants need to innovate, this past year has seen the United Kingdom introducing an open bank API standard, and the Eurozone has enabled fintech startups to offer payment services via APIs. As Boyd said, “Regulation is always something that makes the banks sit up and listen more.”
The Open Bank Project looks to further this goal of a more accessible banking universe by offering a developer-friendly open-source API for banks to build faster yet still secure apps for customers.
“The future belongs to the marketplace bank—a bank that exposes their services and data as an open platform, attracts third-party apps, and fosters a marketplace of services from which their customers can pick and chose,” said Mike Kelly, founder of Stateless API Consulting and a member the Open Banking Working Group for the British government.
After interviews with more than 20 different banks, Boyd witnessed a trend toward “a more customer-centric approach within banks, one way that they are doing that is moving toward a technical architecture that is more flexible and responsive.” APIs are becoming more of their business strategy, “building an API roadmap so they have a clear picture for the next six months that they want to develop,” usually starting with payment APIs and more transparent customer transaction histories. Next up, Boyd says banks are going to utilize APIs to allow customers to modify their credit card limits and to make payment transfers.
What’s really dramatic about this change? It seems that banks aren’t yet monetizing this strategy directly, but rather they are measuring the engagement level and steering their development toward how to increase engagement, not the bottom line.