News and case studies on embedded finance, APIs and much more
The “API Economy” has unleashed a real tsunami in business sectors where technology and software development are a major part of its core generation of revenue and earnings. For banking institutions, technology and software development is a key element, whether or not they are platforms as a service (PaaS). Data storage, infrastructure, applications, identity, payments… there are numerous fields of interest for banks whose essential aspects have undergone a transformation through APIs.
In the Programmable Web directory, with more than 18,000 application programming interfaces in an infinity of fields, over 1,300 APIs are focused on the banking sector, financial sector or linked to crypto-currencies such as bitcoins. In general, the market is estimated to include 2,200 financial APIs. There are numerous companies, startups or organizations that develop interfaces to boost innovation, find new markets for business development or reach agreements with partners who can allow them to improve or grow; or include a business model in the APIs themselves, basically of three types: pay-per-use, subscription, or a revenue distribution model.
A Mulesoft report entitled the 2016 Connectivity Benchmark Report, reflects how 91% of the companies in the world have an API strategy. Banks are one example in fields such as applications, business and development.
In the special case of financial institutions, the use of application development interfaces can be analyzed in a number of different areas, although there are bound to be some more and in no case is this classification an industry standard. First are payments, basically influenced by the consumption of products and changes in habits in the mobile era; then there is the use of data related to bank accounts, transfers or debit and credit cards; and the management of identity in the processes of authentication and security.
Mobile payments are possibly one of the areas where the fintechs have found the best breeding ground for their interests. There are many startups that have launched projects as payment initiation service providers (PISPs). According to the Ditrendia Report: Mobile in Spain and in the World, the number of mobile banking users has grown above 800 million and continues to grow. This, combined with the type of user, makes mobile payments into a business opportunity: 45% of young people recognize that they only access their bank accounts through their mobiles to pay bills and make transfers. There are no revenues despite the trend in habits and users.
In recent years, various fintech companies have entered strongly into the world of mobile payments. Three examples are Square, the mobile payment company created by the founder of Twitter, Jack Dorsey; SumUp, the German startup founded in 2011, in which BBVA Ventures invested at the end of 2013, the bank’s first operation of this type in Europe; and iZettle, one of the major players in mobile payments in Europe, which entered into an agreement with Santander to grow in the Spanish market.
Their main business fundamentally depends on the quality of their software development kits (SDKs) and APIs, for both iOS (Apple) and Android (Google) devices. The current domain of most of the Square market is based on the good level of acceptance for its API among the developer community. Currently the company Dorsey has five APIs: Register API, E-Commerce API, Items API, Reporting API and Employees API.
SumUp also has its own Payment API, which covers the whole communication and payment process between the client application (merchant/establishment) and the card terminal (both the API for iOS devices and for Android terminals are in GitHub). The same is true for iZettle, with SDKs in iOS and Android and an API for third-party development.
The accumulation of customer data by banks is the object of desire of fintechs. It is the accumulated knowledge resulting from the traditional system of commercial banking. Financial institutions are developing APIs that facilitate access to this information, provided that they comply with conditions that guarantee privacy and security, so that third-party developers can create mobile products. The banks obtain revenues from this initiative, but also talent, innovation and new ideas.
One of the most ambitious banking initiatives in the platform as a service (PaaS) model is the Capital One project. Among the enterprise’s APIs is one that manages data related to the gift points accumulated by Capital One customers, called Rewards API. This API enables can monitor the balance of the account, make savings plans, generate content for exchanging these rewards, create synergies with establishments where you can change these gift points for other products, etc.
BBVA is another of the entities that has made a firm commitment to become a platform as a service. Its Open Platform project is a clear example, with various APIs focused on the management of bank data related to accounts, transfers or cards (Accounts API, Money Transfer API and Cards API). These three APIs always function together with a fourth: BBVA Connect API. All of them are API RESTful, based on an OAuth2 security protocol and programmed using various programming languages: Java, Curl and Python.
The management of identity data (authentication processes) is undoubtedly the last area that will remain reserved for the exclusive operation of banks, above all in the post-PSD2 scenario (Revised Directive on Payment Services), the regulations by which the financial institutions must transfer access to data and payment services to third parties. The banks will have to ensure the security of the management of our banking identity and financial information with the entry of new leading players specialized in payment services.
Within this sector there is always talk of biometrics as an element for identifying customers and increasing security against bank fraud. This security is based on the science and technology of biological data analysis, including DNA, fingerprints, retinas, voice and face patterns, etc. Any project of this kind needs the design of APIs that make access to identification data easier. This has one advantage: third-party suppliers will be able to offer financial services to people who are not bank users.
Although as of today, it is governments rather than banks who are acquiring this technology, some actors in the financial market such as VISA, the manufacturer of credit and debit cards, have undertaken pilot experiments for customer authentication using biometric data in card transactions. The process identifies customers through the palm of the hand, the iris, the voice or facial biometrics. For this type of technology to expand, scalable solutions will be needed based on open standards: in other words, more APIs
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