The first blog in this series, explores the rise of Open Banking and the importance of open, flexible API architectures to success.
Options for looking for the right API approach
Drawing on a new report from payment technology leader BPC, we consider the collaborative potential of Open Banking and how to manage associated risks via the right API strategy.
Open Banking has vast potential for collaboration between companies from a wide range of sectors, whether that’s a utility company offering insurance services or a bank offering a supermarket loyalty scheme.
Though European Open Banking is still in its infancy, we’ve already seen products such as instant payments, credit scoring, refunds and subscription payments come to market.
However, such creativity can lead to greater risk as consumers communicate with third party service providers through their bank’s platform.
In response, regulators have introduced frameworks such as PSD2 in Europe to manage risk in Open Banking.
As one example, PSD2 mandates that any transaction over €50 must be supported by additional authentication from consumers in a process known as Strong Customer Authentication (SCA).
In a new study titled Why Open Banking needs flexible API connectivity BPC explain that while such regulations are effective, they also generate additional friction through escalated authentication, slowing transactions down.
BPC argue that banks need to develop their existing open API infrastructures to enable faster, better consumer verification technologies based on digital “passports” held by banks.
Such techniques will speed up user ID and verification, leading to faster, easier onboarding, transactions and better access to other services.
However, developing existing API infrastructures means being able to cope with variations in API templates between individual banks and between national and international Open API standards across borders.
The new report outlines two strategies that can be used to ensure successful API management:
- “Many to many” networks: a “many to many” network of modern and safe APIs is created between banks and third parties, including telecommunications/utilities companies and retailers. These open APIs are used to create a range of digital services such as balance inquiries, money transfers and bill payments from within the applications they use.
- “Many to one”, or National Switching: Markets such as Denmark, the UK and others use this approach, in which Central Banks create a single platform and API set for adaptation to specific use cases. Such centralised networks enable all bank customers and third parties in that market to send funds to each other in real time, 24/7 and with very low risk, permitting services such as account to account payments (A2A) for consumers and businesses, as well as Variable Recurring Payments, Request to Pay and more.
The new report provides real-life examples drawn from all over the world as to how individual banks and entire ecosystems have worked to deliver the benefits of Open Banking to users powered by the right approach to API architectures.
Find the right approach to API management and Open Banking for your bank – download the new report from BPC now.
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