13 Banking, from January 2018, UK Banks

13 January 2018 saw the Second Payment Services Directive (PSD2) go into effect, which is projected to herald a new era of Open Banking.With Open Banking, from January 2018, UK Banks have a legal requirement to share certain information securely online with other regulated companies through Application Programming Interfaces (APIs). APIs work in the backgrounds of different software applications to “talk to” each other. For instance, imagine when a consumer order, track and pay for food delivery to their home, APIs will allow the restaurant, the bank and Google Maps to share information, to boost the capability of each given the consumer’s explicit consent. Barclays has become the latest major bank to partner with Flux, a FinTech company known for making receipts digital for almost 5 million mobile users. The users will get app alerts on real time of purchase, providing greater control over spending and know exactly about their cash flow. According to a Business Insider report, 87% of banks that have partnered with third-party financial service providers (fintech companies) have been able to cut costs. The same study also found that 54% of partnerships resulted in increased revenues.The advantages to partnership also go beyond the tangible pounds and cents. There have been very few discussions about how APIs economy affects the global economy. Currently, Europe is leading the way in thinking about an open API economy in banking, with the rest of the world looking closely at how innovation and competition will change in the European banking sector as a result of open API economy initiatives by regulators and politicians. If the implementation of legislation in Europe, such as PSD2, proves successful, we are likely to see similar moves outside of Europe. In an increasingly connected and complex world, the open API economy in banking will truly only develop when non-EU countries also enter. In North America, for example, collaborative partnerships are developing among traditional industry players, FinTechs and other organizations to drive innovation and differentiation in products and services. Citigroup, for example, has leveraged the IBM cloud platform and industry APIs to enable third-party developers to create new products and services via its mobile banking platforms. Multiple card payment services providers such as PayPal, have APIs to support e-commerce sites that connect merchants to their services, and BBVA (a Spanish bank) has partnered with Dwolla (a bank transfer platform) to support real-time payments by leveraging the latter’s FiSync API.The benefits of Open Banking are not immediately obvious – if someone told you about a bank without a branch or a bookstore without a shelf, it would be hard to picture Monzo and Amazon. Nevertheless, the system will change the way we bank, changing the sector in the same way as media or retail. This marks a huge step forward for the financial industry – an industry that has seen little change since the introduction of ATMs and the online banking portals in 1990.

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