Banking Fintech

Open API standard could empower banks in struggle against fintechs

Open API standard could empower banks in struggle against fintechs. Image: Freepik
Written by Kevin Moseri

The UK government’s open API standard could tip the scales in favor of banks, repositioning them as leading players. Story by Kevin Moseri.

The UK government is currently working with banks and fintech firms to have a detailed framework set out for an open API standard by the end 2015, in a move it claims will empower consumers and boost competition. (Download a PDF copy of the UK government report here.)

The standardization that ensues is envisioned to allow the development of third party apps that are compatible with the systems of all UK banks, and that can securely use consenting customer banking data. While such an open API will allow fintechs to build apps for the banks’ customers who opt to take advantage of the open API, it would also speed up the innovation process. Additionally, it will buy banks (finally!) more time to figure out how to effectively enter into the digital 21st century by focusing on their strengths.

Could this be the firewall that the banks have been so desperate for?
Could this be the firewall that the banks have been so desperate for? Would the banks pull the trigger on fintechs? Imagine a ‘mutually’ beneficial digital ecosystem. It would involve fintechs as content/platform providers and banks as distributors. This would instantly render banks as essential to fintechs, since banks will be repositioned as the leading players within such an ecosystem due to the infrastructure and existing customer base. Clearly, banks would leverage their customer base.

What such a digital ecosystem would do is force fintechs to compete against each other in a bid to get access to the banks’ customer base. One thing is very clear: banks would provide what they’re traditionally known for – risk management, infrastructure management and customer affiliation – while fintechs would provide the innovation. In this scenario, innovation wouldn’t come at the expense of the banks, as fintechs would be competing against each other. Would banks be neutral in this internal fintech brawl, or would they pick sides? Does this scenario remind you of another ecosystem? OK, hint: App Store!

Do you think such an ecosystem would eventually relegate fintechs into being ‘junior’ partners within the online banking and insurance experience? Rather than continuing to use a fragmented approach to the changing landscape, banks would now be in a position to dictate the direction that innovation takes. Could this mean that the banks’ customers would eventually end up being in the driving seat to choose functionality and UI that best suits them?

While I’m convinced that collaboration is the near-future of fintech, I still think banks and fintechs need to focus on building a truly mutually beneficial and sustainable ecosystem. Fidor and Seed are great examples of how collaborations should be structured.

To paraphrase Donald Rumsfeld, there are known knowns but rather too many known unknowns. While other UK government initiatives have made London the Hollywood of fintech, we just have to wait and see how this initiative will affect the pace of fintech innovation. Would it be an adoptable trend for other markets outside the UK? Let me know what you think.

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.

About the author

Kevin Moseri

Kevin Moseri is a marketing expert for the first-to-be-licensed E-Money institute in Germany, PayCenter GmbH. He has experience in developing online marketing campaigns, online & mobile product launches, and EU funding regulation. He is an active fintech blogger with interests in online banking, mobile banking, mobile payment, and insurance.

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