Ten years ago, Mark Boyd was working in public health and urban planning when he discovered APIs. He was investigating the effects of alcohol consumption in cities across Australia using several data sources: licenses to sell alcoholic drinks, availability of nocturnal transport, complaints from the public due to noise, and police data on street fights. He then realized that APIs would allow all that information to be connected in a database that could be constantly maintained up to date, but that we were still not prepared to do that.
Interested in the development of this industry –which was still in its embryonic phase–, he began writing about APIs. He soon learned that “if they are offered correctly, they can allow us to become the co-creators of our own lives”. But how?
“There’s no need to sit on the couch and passively consume the products we’re sold –we can be co-inventors”
“Normally we’re offered a series of finished products that the manufacturers think we need (…) But as we go forward toward the consumption of digital services, which makes it affordable to manufacture small batches, we can customize the products (…) APIs make all this possible. There’s no need to sit on the couch and passively consume the products we’re sold –we can be co-inventors and design what we like”, explains Boyd.
These mechanisms have already been introduced in numerous sectors: in the music sector, for example, to allow the creation of playlists based on what we hear on Spotify; and the health sector, where various companies, like MultiplyLabs, are using APIs to create constant diagnostics and release caffeine or vitamins into a person’s body when they’re at their weakest, thus maintaining their energy levels all day long.
The financial sector has also joined this ecosystem, and ever more markets are now deciding to integrate it. Boyd points to the World Bank’s Consultative Group to Assist the Poor, which is encouraging banks in Africa, Asia, and Latin America to adopt APIs to reduce economic inequality.
Banks who trust their customers so they can make their lives easier
The latest of thesestudies on banking APIs, which the analyst publishes annually along with Mehdi Medjaoui, reveals that many banks still think they are the owners of the relationship with the customer and have therefore failed to take the necessary steps toward developing open banking: “For a long time, the banks have tried to gain their customers’ trust. Now it is the banks’ turn to learn to trust their customers (…) to stay with them when new competitors or opportunities appear thanks to the implementation of APIs”.
If the banks have the necessary trust in their customers and create their own open API platforms, “they can make our cities and communities more dynamic and sustainable”, says Boyd, who imagines how the apps for these tools can be used in our daily lives:
“In the not too distant future, thanks to the connection through APIs, we could begin to receive alerts when we shop in places where the packaging contains too much plastic, and be sent the address of more sustainable retailers. City councils could maybe offer discounts and incentives to companies who use less plastic, and banks could offer loans totransform value chains to encourage them to generate less plastic”.
Open banking has received a boost in Europe thanks to the new PSD2 regulation, which requires financial institutions to open up their data to third parties (developers, startups and other institutions in the fintech world, known as TPP) so the customer can benefit from more competition and better services. In this context, banks like BBVA have already launched their open banking businesses, and have opted to open up their own APIs.
Boydpoints out that in the United States, although they are not legally required to do so, many banks with their eye on the future like Capital One DevExchange are already working on APIs. The difference is that “because the PSD2 introduces the same APIs for the whole world, developers can create new services faster because they can offer them to all customers, and not only customers with links to one specific bank, as occurs in the U.S. In Europe, new forms of saving, loan approvals, transfers or wealth accumulation can be generated at greater speeds, in transactions that are still beyond the bounds of our imagination”.
“If banks exploit open banking and APIs, the pie itself will be much bigger and so will the piece each one ends up with”.
For all these reasons, according to the analyst, this paradigm shift is not a threat to the banks, but an opportunity that must be seized: “The big players in the traditional market must be willing to allow others to have a piece of the pie (…), because if banks exploit open banking and APIs, the pie itself will be much bigger and sowill the piece each one ends up with”.
The expert revealed the formula to achieve this: “Banks must become partners of the new providers and see themselves as an infrastructure, while using the aggregated data to understand and anticipate the services people are demanding. Banks can work with eCommerce and travel providers to offer instant loans during the purchasing process, with accounting software so companies can easily pay their taxes each quarter, with employers so they can offer workers new benefits, with neighbors to collect funds for community events or with family units to make their payments more convenient”, he says as examples.
However, for Boyd the key to the full development of open banking lies in the banks’ philosophy; they “must trust that if they work to support their customers and open their APIs to connect with others, they will continue to be an important part of people’s lives when these new services are created, or rather co-created”.
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