Monetizing Open Banking APIs: A Solution for Traditional Banks to Remain Relevant in the FinTech Era
- 23 July 2019
It’s no secret that FinTech providers are disrupting the financial services industry at a rapid rate. According to CB Insights, there were about 39 VC-backed fintech unicorns worth $147.37 billion by the end of 2018.
Banks and other non-banking financial companies have been paying attention. They are now able to embrace the benefits offered by open banking APIs and are moving from being “Compliant” to the regulations, to the “Compete” phase of monetizing these APIs.
Here, in this post, we explain the role of open banking APIs in shaping the revenue streams of the financial services industry. Banks and NBFCs can use these APIs to monetize their assets by becoming curators of their digital marketplace using ConciergeBank™ - a leading product designed to accelerate Marketplace Banking.
It’s the Era of Open Banking Initiatives
Open Banking is here to stay! Traditional banks may need to upgrade their digital capabilities, on par with or exceeding the services offered by FinTech startups. As a result, several financial services providers have started embracing open banking initiatives, including the top names in the industry like Visa, Wells Fargo, and PayPal.
In Europe, it’s mandatory for financial service providers to include open-banking practices. Under the Revised Payment Services Directive (PSD2) that came into effect on Jan 2018, banks and other financial service providers are legally obligated to provide access to account information, via APIs.
In the UK, the Competition and Markets Authority (CMA) rolled out mandatory API specifications for payment initiation and customer account information. It has reversed the PSD2, and has implemented its own open banking reforms and regulations. The CMA has set up the Open Banking Implementation Entity (OBIE) to support this banking transformation. OBIE designs the specifications for APIs, supports regulated third party providers and banks, creates security standards, creates guidelines for participants and sets out the process for managing disputes.
What do Open Banking APIs offer?
Open banking solutions are not just beneficial to customers, offering them more choice on whom to bank with, but also help banks and other NBFCs enhance their service offerings, improve loyalty, provide better engagements, and increase their overall revenue. Banks that embrace open-banking APIs are expected to see an increase in revenue by 20%, whereas those who resist such initiatives are likely to lose their revenue by 30% by 2020.
In this new API-driven digital economy, to drive the business forward, banks and NBFCs need a better digitally-oiled machinery targeting intimate customer experience. Most banks have completed the ‘compliance’ phase of PSD2 regulation and now the ‘compete’ phase of Open Banking will see businesses coming together to co-create new business models.
The name of the game is “collaboration”, not just with FinTechs but across disparate industry verticals such as Healthcare, Insurance etc., to create new ecosystems using Open Banking APIs, that accelerate the creation of newer, more intimate services to customers. Speed of service is another major factor to retain and grow customer loyalty.
Examples of how Banks can Monetize their APIs?
Banks, by opening up their functionality through APIs to FinTech startups and other potential partner companies, can move beyond traditional services and appeal to the digitally savvy customers of today.
Banks can enjoy API monetization of their financial data in several ways. For instance, a bank can offer an internal credit score service through its APIs, like that offered by Experian, or external tax filing help like that offered by ClearTax, TurboTax, etc.
Banks must streamline their products and services to include open banking strategies and look for ways to make profits from APIs in it. For instance, a bank may have an excellent internal credit assessing system that they use to check whether a potential borrower is likely to default on his/her payments. When this product is only used internally, its potential is limited. When the bank markets this API externally, a wide range of companies like insurance companies, other small lenders can benefit from this API, which, in turn, improves the reach and the service of the bank.
ConciergeBank™ - A Marketplace Banking product to help accelerate API Monetization
New-age banks are not only building APIs to service their own operational and compliance needs, but also allowing outside parties to consume their APIs. Through API monetization, banks can monetize their business functionality, reach new markets and diversify their offerings faster.
The Concierge Bank™ App, a marketplace-banking product from Torry Harris, is helping banks worldwide to offer innovative new products to customers through an API-driven marketplace solution.
It allows banks to: