Welcome to the Frictionless Finance Report, our bi-weekly look at everything new in the world of Open Banking, FinTech and consumer experience. If you’d like to receive this in your inbox every other Wednesday, simply fill in the form at the bottom of the page. This week we examine the value of APIs to companies across sectors, the imminent introduction of Open Banking in Korea, and the impacts – both good and bad – of AI to the banking sphere.
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The idea and technology behind the use of APIs is not a recent one but it is perhaps, the advent of Open Banking that has given APIs prevalence heretofore not seen.
When Uber began using the publicly available APIs from Google maps to display where your car was, there was muted coverage. Similarly, when Facebook released its APIs to allow users to build applications within it.
The question of whether APIs are safe and secure has now become a vital part of modern discussion as we discuss individual’s finances. This week, APIs have been front of mind as we feature new articles from FinanceFeeds, pymnts.com and IT Portal.
When one of the world’s leading banks decides to bolster its use of APIs by expanding its developer team to work with third parties, developers and outside parties to further innovation and tech culture, it highlighted the prominence of APIs to us.
Standard Chartered have launched aXess Platform, aXess Labs and aXess Academy. The purpose of these is to offer developers access to their open source code for banking products, to allow developers to experiment with new technologies and to enhance the skills of their current development team.
Dr Sebastian Wedeniwski, the Bank’s Chief Technology Strategist said:
“The future of banking is changing fast with massive technology-led innovations. Our aXess initiatives to boost our open banking capabilities aims to enhance the developer experience and upskill the technology expertise of the Bank, while guiding developers on our journey to build for openness and integration.”
The pervasive nature of APIs is captured in pymnts.com. Speaking to the website, Justin Goldsmith of Red Hat explains how banks are looking to build out APIs both for the use of third parties and to support their own applications. Allied with the growing volume of B2B payments that are being made through APIs, they are also critical for real-time payments. Naturally, the subject of security is covered, and on this, Goldsmith says:
“when we are exposing APIs, we need to redo them quickly as regulations change or as we build new functionality. You are not going to have a year-long release cycle anymore … these applications are coming. And if consumers are using them, and one bank doesn’t provide the API that they need, maybe consumers will switch banks.”
How financial institutions can best make use of APIs is taken up by IT Portal who write that they are vital in unlocking customer value. Doing so gives banks more of an opportunity to inject themselves into different parts of the value chain. Moreover, banks will have more opportunity to be seen as a “marketplace” where different services can be purchased. Ultimately this can lead to not only winning customer loyalty, but to creating successful digital transformation and a collaborative framework with other service providers. They conclude:
“These gains will only be achieved if traditional banks adopt an API-centric mindset that accelerates integration and innovation and provides a seamless customer experience. Unlocking data through APIs and an application network is the best way to stay ahead of the pack as the pace quickens in the race to become the bank of the future.”
How those APIs are developed and built to work for other sectors remains to be seen. The impacts that they could have in areas such as retail and mortgages is huge. This has been well covered in the pages of Business Cloud on retail, while Computer Weekly and Mortgage Finance Gazette have looked at APIs from a mortgage angle.
Retailers are watching closely to see how Open Banking progresses, as the use of APIs in retail could prompt an overhaul of traditional loyalty schemes. Understanding with granularity how customers spend their money could allow more targeted promotions and innovation amongst retailers. Importantly Open Banking APIs could see a reduction, or indeed elimination of card fees, leading to a reduction in prices for consumers.
Computer Weekly and both Mortgage Finance Gazette have both rightly identified the mortgage sector as one that will be radically transformed by the introduction of Open Banking. Computer Weekly identify how attitudes are changing – particularly among young people – and a growing volume would now accept a robo-advisor finding a mortgage on their behalf, while MFG highlight MortgageGym, a company that utilises Open Banking to offer mortgages in fifteen minutes, with no need for paper-based statements.
For a good overview of how data security and privacy fits into the equation, Financial Brand has a good overview of how Open Banking is changing the financial landscape. they write:
“As more competitors enter the market, banks will need to have a system to protect consumers from phony transactions. Using encrypted and aggregated data will enable banks to create a robust system. By thoroughly vetting potential API partners, banks can ensure their consumers aren’t subject to unwanted advertising or predatory lending.”
Best of the rest:
- Why banks should embrace Open Banking
- Moneyhub research into Open Banking
- 90 day reauthentication means “we are unlikely to be able to get borrowers to refresh their Open Banking permission”
- How Open Banking can benefit small business
- Who will win in the Open Banking race
- The CMA9 respond to delays in providing Open Banking services
We welcomed Korea to these pages some weeks ago, and we’re delighted to see further progress being made on the peninsula. The Korean Government has announced that Open Banking will go live in December. This follows a two month deliberation by a working group of eighteen banks and industry bodies, and will see testing commence between May and October, with a pilot running from October to December.
The Korea Herald write:
“Lowering network usage fees is another main part of the FSC’s open banking scheme. Banks currently charge around 400-500 won (35 to 45 cents) for each case handled. But with the new interbank network, this fee will be brought down to one-tenth of the current level, and even lower for smaller startups, according to market projections.
“In doing so, the FSC aims to help Korea foster more successful fintech firms pursuing mobile money transfer and simplified payment services such as the likes of Toss, Naver Pay and Kakao Pay.”
Should the United States welcome Open Banking as an opportunity, or accept that it simply won’t work? That debate has been entered into on one side by Ron Shevlin in Forbes, who argues that the lack of common definitions and standards in the US is unlikely to be resolved anytime soon; and American Banker on the other, who write that the advent of Open Banking will see financial institutions being able to offer new services because customers will have more data than they can process.
Following publication by a new study by IHS Markit there has been substantial coverage of the impact of AI within the finance sector. Dependent on what side of the fence you sit on there are positives and negatives from the result of their investigation. With the introduction of new services, prices could drop, and consumers should see more intuitive applications going further than the robo-advisors and chatbots available today.
But with AI assets worth an estimated $300 billion by 2030, there is also the risk to jobs. IHS Markit estimate that 1.3m jobs in the US could be under threat, with another 500,000 in the UK in similar jeopardy.
IHS Markit conclude that America continues to be the dominant strength in AI, and expect this to continue through to the middle of the next decade. However technologies are progressing faster in other jurisdictions, and they expect Europe and Asia to catch up by 2030.
Don Tait, Principal Analyst at IHS Markit said:
“Banking employees potentially impacted by the introduction of AI includes tellers, customer service reps, loan interviewers and clerks, financial managers, compliance officers and loan officers. All in all, AI technology will reconfigure the financial industry’s structure, making the banking sector more humane and intelligent.”
The rise of the digital banks has been well documented on these pages, and as we covered in the last edition of the Frictionless Finance Report, the incumbent banks are beginning to fight-back with their own digital led offerings. The popularity of Challenger banks such as Revolut, Starling and Monzo has been backed up by new research published this week by FIS which shows that 71% of all banking interactions are now occurring online, with just 6% happening in a branch. Younger bank users especially are now demanding more digital offerings from their bank. The Drum have this week revealed that key to success at Monzo has been the use of machine learning and AI, using techniques that make the app’s use seamless for customers.
FIS executive vice president of banking and payments, Raja Gopalakrishnan, said:
“It’s now second nature for many consumers who expect instant and immediate banking access, to take advantage of user-friendly apps to manage their finances.
“Many banks of all types are doing a fantastic job when it comes to customer experience and consumers are experimenting and getting more familiar with what is on offer.
“However, as new products come onto the market following the launch of the UK’s open banking initiative last year, awareness of the benefits has increased, and the time for complacency among the big established banks is over.
“It’s particularly crucial that mobile is recognised as the most important part of banks’ customer-facing offering, to drive engagement with consumers of all ages through a secure and frictionless experience.”
Which have also examined this in more detail, outlining exactly what the high-street banks are offering by way of digital offerings.
We were delighted to see our friends at FinTech Scotland give an excellent interview to Scitech Europa on the future of financial services technology. In the wide-ranging interview, CEO, Stephen Ingledew comments on the importance of FinTech to the Scottish economy, and the launch of the new Global Open Finance Centre for Excellence.
“FinTech is important for Scotland because it is reinventing financial services, both economically but also for society. The role of FinTech Scotland, therefore, is behind the scenes. We connect the entrepreneurs, big companies, academics, students, and consumers, as well as those that have perhaps become disenfranchised due to not having good quality financial services previously. The Scottish government is very supportive of this aim.”
Fintech news in brief:
- The FCA has laid out its priorities for 2019/20
- Here are the top 10 learnings on the future of money from the LendIt FinTech conference
- Why FinTech is critical to both the UK and Europe
Following the launch of our Income Verification solution, we have been delighted with the coverage it has garnered. You can see some of the coverage across Finextra, Finovate, Insider, Invest Edinburgh and FinTech InShorts. Our CEO, James Varga, has also penned two articles on how Income Verification represents the next stage in Open Banking, and on our journey to create the solution.
“The benefits of using such a tool are clear. If we take the example of a bank or lender processing a loan application; with Income Verification, the bank could, within seconds of the applicant logging into their online banking, be in receipt of their calculated income. This negates the problems that banks have had for years, which is income supplied by the applicant is prone to error or inflation. This also then ensures swift and seamless customer onboarding, removing the opportunity for the customer to apply with a competitor.”
To help customers and stakeholders understand how Income Verification can make a difference in their business, The ID Co. Hosted a live demo and webinar on Tuesday 23rd April. In it we ran through use-cases, and showed some of the savings that can be made in time, resource and money. You can watch a recording of the webinar, here.