Open banking was usually presented as a threat to incumbent banks. There was another possibility: an API ecosystem could become the mechanism through which banks remained central while allowing innovation to happen around them.
The UK government was working with banks and FinTech firms to establish a detailed framework for an open API standard by the end of 2015, with the stated aim of empowering consumers and increasing competition.
The proposed standard would allow third-party applications to work across the systems of UK banks and, with customer consent, securely access banking data. For FinTech firms, that would lower the friction of building products around banking services. For banks, it could also create more time to work out how to respond to the digital shift while retaining control of the infrastructure and customer relationship.
This was consistent with the direction of PSD2 and the wider push towards open banking. The question, therefore, was becoming less about whether banks would open their systems and more about when — and on whose terms.
An open ecosystem as a market-share firewall for banks
Could an open API ecosystem become the firewall banks had been looking for?
Imagine a mutually beneficial digital ecosystem in which FinTech firms provide applications and services while banks act as distributors. Such an arrangement could make banks essential to FinTech firms because banks would retain the infrastructure, regulatory position and established customer base through which those services reach users.
It would also change the competitive dynamic. Rather than competing directly with every FinTech entrant, banks could allow FinTech firms to compete with one another for access to the bank’s customers. Banks would continue to provide what they traditionally did best — risk management, infrastructure and customer affiliation — while FinTech firms supplied much of the innovation.
But would banks remain neutral in that competition, or would they pick winners? The comparison that came to mind was the App Store: a platform can encourage an ecosystem of third parties while retaining considerable control over the conditions under which those third parties reach customers.
That raises a more fundamental question. Would an open ecosystem eventually relegate FinTech firms to the role of junior partners within the online banking and insurance experience? Instead of responding to a fragmented changing landscape, banks could be in a position to influence the direction in which innovation developed.
For customers, however, the outcome could be different. If the ecosystem worked properly, they could gain more choice over the functionality and user experience they wanted from their financial services.
The strategic value of an open API was not simply access to data. It was the possibility of remaining the platform around which financial innovation took place.KEVIN MOSERI · EARLIER WORK
Collaboration is the near-future of FinTech
I’m convinced that collaboration is the near-future of FinTech. But collaboration only works if the ecosystem is genuinely mutually beneficial and sustainable.
The Open Bank Project API in Berlin was an interesting example of the direction this could take. Fidor Bank and Seed also offered examples of how collaboration between established financial institutions and technology companies could be structured.
To paraphrase Donald Rumsfeld, there were known knowns but rather too many known unknowns. The UK had already established itself as a major centre for FinTech, and this initiative offered another test of whether government-led standards could accelerate innovation without allowing the ecosystem to become too tightly controlled by incumbents.
The question was whether the model would prove adoptable beyond the UK, and whether banks in other markets would use open APIs to enable innovation — or to strengthen their position as the gatekeepers of financial services.
I planned to speak with the team behind the Open Bank Project initiative to get a better sense of where the project was heading and how its approach to collaboration was developing.