Singapore is favouring an organic, market-driven approach in the adoption of open banking APIs.
As financial institutions grapple with mounting regulation, digital transformation and changing customer demand, there is widespread realisation that ageing, legacy technology simply won’t cut it anymore.
An open strategy is needed for a competitive edge. Whilst in practice this might look slightly different for banks, developers, Fintechs, regulators and customers, the entire industry should be looking to find ways of unlocking the potential which will impact and, ultimately, provide benefits for all involved.
With the objective of stimulating competition in banking, monetary authorities across Asia are looking at this themselves and starting to put in place a number of Open API directives and specifications designed to dramatically reduce barriers to entry, create opportunities for nimble and innovative players in the market, and encourage competitiveness within Asia’s banking sectors.
Although the use of APIs is not new, their ability to maximise potential and enable users to glean deeper insights has seen huge growth. In this evolving environment, banks and Fintechs need to work together; incumbent financial institutions bring breadth and depth of customers, trust and proven experience whilst Fintechs and challenger banks have the advantage of innovative approaches to technology and perhaps greater engagement with customers who enjoy seamless banking services.
It’s about collaboration - coming together to develop the digital banking services customers have come to expect.
A balancing act
Having taken early steps to embrace the Open Banking revolution, Singapore is said to be favouring an organic, market-driven approach to encouraging adoption of open banking APIs – an approach which seems to be working, with DBS launching the world’s largest API developer platform in November 2017. In Hong Kong, the Hong Kong Monetary Authority – inspired by PSD2 in Europe – recently launched an Open API framework for consultation with the industry. Furthermore, a number of industry bodies are also looking at the need for standards around API platforms within the financial services industry. As open strategies gain broader adoption, financial services regulators will almost certainly continue to take a stronger role in shaping industry standards.
Just as Salesforce set the standard for sales automation software and created a common platform for sales automation apps, the same needs to happen in banking. Finastra CMO, Martin Häring said, “While Finastra strives to ensure greater agility, reliability, security and openness within the banking sector, we are also determined to help deliver significantly lower operating cost models and more sophisticated and customer-centric services that are fit for purpose in an increasingly competitive and regulated sector.
A platform-based approach, underpinned by an extensive ecosystem of participants that all adhere to common standards, is crucial in enabling banks to quickly access, integrate and deploy new APIs from Fintechs and developers.”
Connecting the old with the new
The preparatory stage is key for financial institutions looking to transition to an open strategy. The first stage is to look internally – select the right model to adopt APIs that best supports the organisation’s overarching business model and one that will enable them to take advantage of the richness of existing systems.
This is a process Finastra went through several years ago as it made the move to providing an innovative and collaborative open financial services platform, recently opening its architecture for third parties to develop and deploy applications.
In many cases, a hybrid integration of legacy systems and an open strategy, focused on connecting traditional methods to new internal applications and external third parties, will prove most effective for those with a heavy dependence on legacy applications.
An API strategy can extend the value of existing technology investments and create value by tying together disparate systems and gradually increasing the internal accessibility of data across various business lines. This, in turn, can encourage the development of innovative applications and services in collaboration with third parties such as developers or Fintechs. Once a true platform approach has been established, banks can drive innovation from within in collaboration with third parties and continue to progress incrementally, embracing transformation initiatives and evolving with the agility to meet ever-changing customer demands.
The rise of a collaborative, open ecosystem where banks, Fintechs, challengers and other industry players work together to further innovation is the only way the industry can continue to deliver what customers want.
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