APIs are driving the digital transformation of banking

2 min reading
APIs are driving the digital transformation of banking
APIs are driving the digital transformation of banking


APIs have become the heart of the digital transformation of banking. This revolution is taking shape though an open banking model and is boosted by the implementation of the new European payment services directive, dubbed PSD2.

The digital transformation of the banking sector has materialized in ‘open banking’. A model driven by the EU through the implementation of the new European Directive on Payment Services called PSD2. APIs have become the protagonists of this new scenario. 

Joy Macknight, deputy editor of The Banker explains in an article in the prestigious specialist publication how the banking sector, which initially was slow to react to the possibilities offered by APIs, has in recent years recovered lost ground.

Many significant names in the sector have already implemented initiatives to open up their core platforms and services through open APIs. BBVA is playing a leading role in this revolution, according to Macknight.

In the EU, a key role is being played by the PSD2, an updated version of the Payment Services Directive (PSD), which has entered into force in 2018. The EU regulation requires banks to share customer data with third-party providers. The aim is to eliminate barriers to entry in the sector, and thus increase competition. 

But this drive is not exclusive to the EU. While immersed in the Brexit process, the United Kingdom has its own agenda to promote open banking, due for implementation in 2019. It has created an institution called Open Banking, which in July released a number of specifications for financial APIs. These rules have also come into force in 2018. Elsewhere, the Australian government has decided to provide a formal boost to open banking through new provisions that could be ready this year. 

But what actually are APIs and how can they change the relationship between people and their financial institutions? Application programming interfaces (APIs) allow software programs to exchange data in a standard way, in other words “communicate” quickly and effectively. The result is that developers can create new and better applications by integrating data from other programs, and users receive a better and more complete service. For banks, APIs are a key tool for their transformation from financial institutions to the core of an interconnected digital ecosystem in which they interact with all kinds of companies. 

The article in The Banker highlights BBVA’s commitment, noting it has made eight APIs commercially available this month (May) through BBVA API Market. They allow companies, startups and developers to launch new products and services by integrating financial services for BBVA customers into their applications (provided that they give their consent). “Customers own their data”, explains BBVA API_Market Spain, and with the customers’ consent BBVA makes it easy “for third parties to add value to customers’ lives in a way that we can’t.” 

Macknight, who also discusses the initiatives of institutions like Starling Bank, Nordea, Wells Fargo, MasterCard and National Australia Bank, also notes how often the choice is for a system with different access levels, allowing companies to test the possibilities of APIs for their businesses in a tiered approach. In the case of BBVA API Market, for example, there are three levels: a sandbox for testing using simulated data; a free basic access level with real data for limited use; and full access, with unlimited access based on a contractual relationship. 

APIs are thus consolidating their position as a doubly useful tool for te banking system: they are the most efficient instrument for adapting to the new rules of the game introduced by PSD2, and above all they allow banks to transform into more digitalized entities that are connected to customer needs. 

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