From its roots in the UK and EU, open banking has become a global phenomenon as financial institutions open up access to their data to enable clients and approved third parties to exchange data and transact digitally via application programming interfaces (APIs).
While APIs are currently more widely used in retail banking, the growing suite of open APIs available in the Securities Services post-trade space could create significant benefits, both in solving existing problems and creating new service offerings.
While open banking started life in the UK and EU, it has taken hold worldwide. In addition to regulatory initiatives, the trend towards open banking is becoming increasingly market-driven as market participants recognise the value of APIs as a means to exchange data and transact digitally, embed third party services, and leverage APIs as the ‘pipework’ on which new digital services can be built.
Consequently, open banking is not simply a regulatory or even technology issue. Rather, it reflects a new model for market participants – whether consumers or businesses – to interact and consume data and services. We have seen exponential growth in the use of APIs, particularly in emerging markets given the ubiquity of smartphones in many of these markets, with mobile apps primarily based on APIs.
This shift in thinking, and the growing expectation of a 24/7 instant digital experience, shapes how banks look at their enterprise-wide architecture. At Standard Chartered, we are looking at how to open our channels and how to enable and leverage distribution partnerships in different ways and with different client segments. Our API strategy is a key part of this process as we look to open, augment and integrate our product suite.
We are seeing growing interest from our clients in accessing our 130+ APIs on which to build their own services. Our aXess platform provides clients, partners and fintechs open access to our APIs, applications, and libraries. This has proved instrumental in supporting our clients’ digital connectivity ambitions.
APIs facilitate the increasingly digital ways organisations do business, enabling them to meet demand for a frictionless, instant experience.
For example, APIs power greater payment choice and convenience through QR-code-based products, and users can top-up an account, access a digital service or upgrade a distributor limit instantly leveraging instant payment and instant/credit notification via APIs.
Creating an instant, frictionless experience and full data transparency for clients is an important way to create competitive advantage.
At the same time, APIs enable companies to embrace digitisation and automation in their own businesses by improving liquidity management, enhancing treasury operational efficiency, and establishing multi-bank, multi-country visibility through a single platform.
These value propositions are as relevant to institutional clients as corporations, even though the application may differ. Creating an instant, frictionless experience and full data transparency for clients is an important way to create competitive advantage. For example, a Singapore-based institution with a client in New York can use an API to avoid the impact of processing ‘down time’ that could disrupt the client’s access to data during their working day, and instead ensure 24/7 access.
Over the past 18-24 months, we have been engaging with post-trade clients on their various problem statements and opportunities. Based on these conversations, we have co-created a suite of APIs for post-trade services to help clients increase operational efficiency, reduce manual processes, enhance data communications, and access value-added services. This includes securities transaction status reporting, holdings information and market information, as well as liquidity management and multi-bank connectivity.
APIs may be an important ‘transport layer’ for bringing together data from multiple systems or stakeholders, or form the basis on which other services could be built, such as blockchain-based solutions, chatbots, data as a service or digital asset services.
For most of our institutional clients, the use of APIs complements rather than replaces their core infrastructure and existing communication channels such as host-to-host. Clients tend to explore the use of APIs and other technologies when embarking on a broader digitisation strategy, implementing new reporting or data requirements, or seeking to meet a particular operational objective.
Wherever a client may be on their digital journey, it is important to have a vision of where their industry is headed, and what role the business will play in this. Only then should they consider what they need to achieve this. APIs may be an important ‘transport layer’ for bringing together data from multiple systems or stakeholders, or form the basis on which other services could be built, such as blockchain-based solutions, chatbots, data as a service or digital asset services.
The open banking API ecosystem continues to expand but obstacles to its success and scalability remain, such as the lack of standardisation of API formats across banks. This could be frustrating for institutional clients with multiple banking partners. While this differentiation can help drive innovation and customer choice, standardisation is important to achieve scalability at a market level.
The connectivity opportunities that APIs offer also need to be balanced with security considerations, such as digital identities to control what data is exchanged and who can access it. Collaboration between regulators, banks and fintechs could reap considerable results in this arena. In some countries such as India, digital identity is managed at a country-level (Aadhaar) rather than bank level, which boosts speed and scalability of banking service delivery.
Open banking and APIs create new opportunities to solve problems and create new service offerings, not least in achieving instant, 24/7/365 services, and highly automated processes. Like any other technology, they are not a panacea, even though many organisations will benefit from APIs as they digitise their business models. The growth of APIs reflects a new way of thinking, co-creating and delivering digital services, not simply a new technology. Walls are being broken down across industries as they learn from and collaborate with each other. This mindset is valuable for exploring and delivering on the potential of APIs as well as the adoption of other digital technologies that may also play a complementary or even transformational role in the future.
Walls are being broken down across industries as they learn from and collaborate with each other. This mindset is valuable for exploring and delivering on the potential of APIs as well as the adoption of other digital technologies that may also play a complementary or even transformational role in the future.
