The use of application programming interfaces (APIs) has slashed the time and complexity of technology development for many financial services companies, but much of the movement emerged spontaneously, and in the U.S. there’s been little attention paid to API standardization.
Plenty of U.S. banks already have their own robust API programs, but research by Nacha, the electronic payments association, indicates that the differences in their approaches could slow the banks' ability to synchronize with global fintech development.
“We see a lot of common programming languages used for APIs and for the most part banks are choosing the same methods for security with APIs, but in other areas, they’re taking different approaches, which could create problems,” said George Throckmorton, managing director at Nacha.
Over the last year Nacha talked to many financial organizations and determined there was a strong need to devise relevant API standards in the U.S. It now seeks to do that by partnering with Accenture to create a community ensuring U.S.-developed APIs jibe with global standards.
“Accenture has done a lot of work with APIs in global markets and it’s also working hand-in-hand with Google, whose products we’re using to build our standards infrastructure,” Throckmorton said.
The organizations will establish a microsite and developer portal to support API standardization across the payments ecosystem, stocking it with developer training tools, code samples, training and support materials to ensure interoperability and better adoption of APIs, he said.
Another driving force behind the initiative is the rise of APIs as a key tool to comply with new “open banking” regulations in the U.K. and Europe that require banks to share data, and U.S. banks may benefit from moving in the same direction, according to Throckmorton.
“Mandates are driving adoption of open banking via APIs in Europe, and while there’s no such mandate in the U.S., banks everywhere are looking for ways to cooperate with the fintech community, and APIs are primary way for them to share customer data,” he said.
Nacha drew up a list of 16 API types that are transforming the financial services industry, selecting five of those for fast-track development of standards, Throckmorton said.
A top priority is to standardize APIs to get a customer’s account balance, enabling an organization that requests the account balance to receive it in a standardized format, he said. Another important area is delivering customers’ account history.
“We’re starting work on the most basic APIs for sharing data—what’s the account balance and what’s the history—and moving on from there to make sure banks of all sizes in the U.S. have access to a standard process,” Throckmorton said.
Other APIs Nacha has targeted for standardization include validating accounts and transaction status, getting bank contact information, supplying appropriate federal and state tax information and supporting interoperability, among others categorized under data sharing, payment access and fraud and risk reduction.
Nacha is talking to companies within the U.S. and abroad to do pilots and proofs of concept, and the organization eventually plans to develop an API sandbox of its own, Throckmorton said.
The effort would help smaller U.S. financial institutions along with large banks already using APIs to support microservices, he said. “A lot of smaller banks are looking to their service providers to support their API development, and standardizing APIs will benefit those who do their own as well as those who outsource the work."