U.S. Banks Must Follow Europe's Lead and Improve API Standards

With the threat of a hard Brexit looming on the horizon, the European banking system is at a tipping point. For the casual American observer, the politics of closed border, closed systems and closed economies appear to have won.

But there’s more going on in European banking than meets the eye.

UK and EU regulators are pushing for greater financial openness – and banks are responding by opening their data via secure APIs (Application Program Interfaces). EU and UK banks stand to gain competitive data and revenue advantages with APIs, potentially forcing American institutions to play catch up.

European Banking APIs Compete with U.S. Financial Institutions

The UK government is backing open data requirements and standards. In a report released earlier this year to the UK’s HM Treasury, the Open Data Institute outlined open banking and open data sharing standards to be implemented by 2017.

If these standards are not adopted by 2017, regulators and lawmakers have threatened to legislate secure API standards.

In a separate initiative called PSD2, the EU offers a parallel payment services directive. Kenny Roberston, Head of Services Legal at the Royal Bank of Scotland says, “PSD2 will require banks to offer third-party developers access to their systems via open APIs. Under its terms, banks are required to foster an open and equal market by allowing approved and licensed third party providers (which will include FinTech developers) access to customer accounts where the customer has granted permission.”

Why do these UK/EU open API frameworks matter to our American readers?

First, many London-based businesses have indicated that they will relocate to the US and EU following a hard Brexit. Second, the new UK and EU open API standards and directives will fuel essential API innovation, further taking market share from foreign markets. APIs are nearly stateless.

While some regulations and tax regimes may affect open API data transferability and revenue, in general, banks deploying open APIs will be best positioned to take market share away from global competitors.

APIs & U.S. Banking

Will US banks maintain strength via open API innovation or will foreign competitors, like EU-based banks, poach these lucrative data and revenue streams?

Andres Wolberg-Stok, Global Head of Emerging Platforms and Services at Citi, says, 'For banks that are large enough and that have sufficient complexity, there's a big incentive to use APIs for their own channels, so the opening up begins at home,' Wolberg-Stok and others understand that opening up data to outsiders will necessitate certain segments of customer loss as customers may chase products more amenable to their needs. API sharing may, “hasten the unbundling or disaggregation of traditional bank services by enabling smart aggregators to pick apart the value chain and reassemble the pieces in new ways.”

Make no mistake, APIs (whether from UK, EU, regulators, or US based bank and fintech competitors) are currently under development and aim to take a share of bank revenue and customer base.

The key to retain or grow your market is to develop a strong API strategy. APIs don’t need to be complex; they simply must serve a customer need.

As Stefan Weiss, head of APIs at Fidor says, “Just because you can offer an API for something doesn’t mean that you have to offer an API for something. APIs are products, have to be handled as products. You must have a customer, and a reason for the customer to buy the product.”

In the next year, expect APIs to take on a larger role in global financial competition at home and abroad.