Open banking is measured as a standard where banking data is shared through secure application programming interfaces (APIs). An API is a software intermediary that allows two applications to exchange messages and data in a standard format. When an application is used, it connects to the internet and sends a data request to a server. The server receives the data, interprets it, performs necessary actions and responds to the initial data request. After the programme receives the requested data, it interprets the data in multiple forms where the user can decide the functionality of the data, either to use it for presentations or for operations. This allows customers, both individual consumers and businesses, to do more to effectively manage wealth. It can also be defined as a collaborative model in which banking data is shared through APIs between multiple parties to deliver enhanced capabilities to the marketplace.
These APIs can be categorised into three models, each with its own unique attribute. The first type is an Internal API, where the enterprise’s internal developers use APIs for internal applications. The advantages of this model result in cost reduction, operational efficiency, and enhanced security, by using a platform to gain easier access to their enterprise’s database. The next type of model is a Partner API, where a business-to-business form of API is used between partners for tighter partner integration. Similarly, the Partner API is used to reduce partner costs, API monetisation, and enhanced security between business partners through using shared resources and networks. The last and latest type of model is Public APIs, which is where external partners and developers use Open APIs to build innovative products based on data functionality presented publically. The primary advantage of this model is it encourages innovation by engaging the developer community to use public data for their own application purposes or by extending the functionality of already existing publically presented data.
The three models of APIs have existed for years and are used to present billing details on bank websites, for personal financial management software, and to connect developers to payment networks like MasterCard and Visa. They are used primarily for sharing information rather than to transfer monetary balances. With the evolution of open banking, there are copious amounts of potential benefits all aimed towards creating an improved customer experience, new revenue streams, and a sustainable service model for underserved markets. Open APIs also allow third-party developers to create useful services and tools that customers can utilise such as mobile banking to allow individuals to make mobile payments. With an open API, businesses can access real-time data providing more accurate and up-to-date information on finances rather than the traditional commercial software for bookkeeping forcing businesses to enter their transaction data manually.
Along with benefits, there are often concerns that arise with the evolution of this banking model. With open APIs used for open banking, there is a risk of cyber-attacks as the financial service industry is often a top target for cybercriminals looking to steal valuable data. Current data shows that financial firms face daily attacks, from which a shocking 36% result in some form of data loss. Additionally, open banking also raises issues around regulation and data privacy and global markets have taken varying approaches to governance, contributing to diverse levels of progress. There have always been inherent risks in sharing data, which is why it is critical to develop processes and governances to create a foundation for the technical connections in the network open banking.
The momentum towards open banking models seems clear, requiring banks and financial technologies to begin positioning themselves for success in the new industry environment and prepare for the customer impacts it will create. The open banking model can facilitate a series of valuable services for both consumers and providers. Some of these services exist today in different forms including WeChat and AliPay, which enable enhanced e-commerce through their platforms and offer a smoother, more personalised experience and payment options. Furthermore, by introducing more consumers to the formal financial system, open banking increases the market opportunities and the potential to deliver profitable services in the future.
While it seems unavoidable that open banking will result in a sacrifice of control by banks, this will be offset by the benefit of participating in the larger profit pools in which they are well-positioned to play a leading role. The evolution can occur by creating new service propositions combining predictive analytics, artificial intelligence, and financing to enhance consumer and business offerings. Change is inevitable, as banks will need to address the potential loss of revenue from existing payment revenue streams resulting from lowered barriers to competition. Banks are best-served achieving a first-mover advantage by being proactive in delivering innovative and appealing products that customers want and need.
So what does this mean for your career? With the evolution of open banking in the financial industry, there is a large demand for skilled workers in tech, who will assist throughout this change. These workers often come from niche programmes where they are trained in multiple tech fields and are equipped with the right set of skills to begin working immediately. FDM’s Careers Programme helps bridge the gap between graduates and employers by providing training to equip individuals with relevant technical skills and commercial experience. The programme results in a vibrant and diverse workforce of talented professionals, which are in demand with employers.
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