We’ve written about the API Economy previously and expressed our optimism toward specialization of service providers in the financial services market. It looks like frameworks and proposals being put in place may speed up that development, by forcing uniform standards and requirements on the market.
The revised Payment Services Directive (PSD2) may have a long term effect and catalyze the banking sectors position shift to piping from certain high-value services.
In 2013, a revised Payment Services Directive (PSD2) entered the discussion and was proposed by the European Commission with the objective of furthering the services and standards in the original framework. The PSD2 is still not fully set and the discussion is still ongoing, however, there are various elements that are interesting to examine and are being anticipated by service providers in the financial markets.
In this post, we are not going to open up all of the requirements and potential implications of PSD2, but rather focus on the general catalyst effect that it is already having in the market. For further reading around PSD2 and what effects it has, we can recommend SEPA for Corporates dissection here.
In this post, we are not going to open up all of the requirements and potential implications of PSD2, but rather focus on the general catalyst effect that it is already having in the market. For further reading around PSD2 and what effects it has, we can recommend SEPA for Corporates dissection here.
PSD2 Mandates an Interface to Core Banking Services
In the framework of PSD2, there are provisions to mandate a requirement for financial institutions to provide access to their core banking services for service providers through an application programming interface (commonly, API). The use case is to allow third parties, with the end users permission, access to certain services using their accounts with financial institutions such as banks. These services may include collecting payment, authentication or verification.
The aim of this interface and more broadly framework, is to bring strong customer protection and efficient fraud prevention standards into play, but the effects on pushing financial institutions into adopt the philosophy around the API Economy may be much more significant than the framework might lead you to believe.
The aim of this interface and more broadly framework, is to bring strong customer protection and efficient fraud prevention standards into play, but the effects on pushing financial institutions into adopt the philosophy around the API Economy may be much more significant than the framework might lead you to believe.
Financial Institutions Anticipating the API Economy
From our work with leading financial institutions around the world, we can see the work on exposing interfaces and making core banking services available already. Take for instance the Spanish Bank BBVA’s API Market platform that’s been rolled out in Spain and the US so far. Similar initiatives are being prepared and launched in various forms of innovation accelerators, internal ventures and new business development teams around the world.
The change in acceptance and adoption of digital finance models, including these interfaces, but more fundamentally the allowing of third party service providers access to use core banking features, signals a change from proprietary siloed technology to a true ecosystem narrative. Let’s be very clear, this is not an altruistic effort on anyones part, however, it is an anticipated requirement for staying relevant in the global financial services market, which means exposing core banking services for specialists who can run their specialized services on top this global, highly regulated and maintenance heavy banking infrastructure.
The change in acceptance and adoption of digital finance models, including these interfaces, but more fundamentally the allowing of third party service providers access to use core banking features, signals a change from proprietary siloed technology to a true ecosystem narrative. Let’s be very clear, this is not an altruistic effort on anyones part, however, it is an anticipated requirement for staying relevant in the global financial services market, which means exposing core banking services for specialists who can run their specialized services on top this global, highly regulated and maintenance heavy banking infrastructure.
A Global Shift - far Beyond the EU
It may be tempting to think, that frameworks put forth by the European Commission would only have an impact within its jurisdiction. Tempting, but not realistic. Given the interconnectedness of the global financial services sector, new ways of delivering are being prepared and launched all around the world, and strategies are being laid out on how positions are changing in the market.
In financial services, regulation and anticipation of regulation plays a significant role in long term strategy. The same characteristics in the market demand that ultimately manifest themselves also in new regulatory discussions and proposals, are what is is driving this shift from Asia the to the Americas.
In financial services, regulation and anticipation of regulation plays a significant role in long term strategy. The same characteristics in the market demand that ultimately manifest themselves also in new regulatory discussions and proposals, are what is is driving this shift from Asia the to the Americas.
What's The Bottom Line?
Always a good question. The point is, the change is coming and whether or not financial services companies agree, they have no choice but to anticipate the requirements imposed on them whether by a centralized regulatory body such as the European Commission or through the general, global consumer demand.
Burying your head in the sand as an option has decidedly been taken off the list of choices, at least mechanically speaking, and the bank as a platform has just started. The implications are also clear, the position of the bank is shifting. Similar to how telecom operators have seen their infrastructure be opened up, banks will find a new position as a core infrastructure provider and find new value chains to leverage in the open platform economy.
Burying your head in the sand as an option has decidedly been taken off the list of choices, at least mechanically speaking, and the bank as a platform has just started. The implications are also clear, the position of the bank is shifting. Similar to how telecom operators have seen their infrastructure be opened up, banks will find a new position as a core infrastructure provider and find new value chains to leverage in the open platform economy.
What Can We Expect?
Through our work with leading banks, we can see the wheels in motion in the background. We can see the amount of investment being made into new cutting edge technologies, new ways of providing services and new business lines being created. We will see banks both lead and get left behind, with the shift to becoming more relevant to the market, the consumer and the service provider longer term being the main focus. Leveraging back and middle office frameworks like the Crowd Valley Digital Back Office is part of this development and in our work, we are fortunate to be able to assist in the migration to the new banking economy with the right balance of efficiency and security for all parties involved.
RSS Feed