Open banking needs more than APIs to work
All the hype about digital transformation in financial services risks eclipsing something really important. This new dawn of open banking extends only as far as the connectivity layer that enables payments to be authorized. It doesn’t touch the back-end systems that actually move the money.
For many, this doesn’t matter. For a whole host of payment use cases like e-commerce transactions, domestic account transfers and credit card payments, the fact that the customer’s bank simply adjusts their balance when a payment is authorized is more than enough.
Cosmetic surgery, however, neither makes you fitter nor faster. And so it is with payments. The nips and tucks in today’s system are already visible, such as the painful settlement times and exorbitant costs of international money transfers as a case in point. The difficulties in making cross-border B-to-B payments also suggest not everything is as it should be. Both of these services involve larger sums passing through a hairball of back-end systems before they finally arrive as cleared funds at their destination.
That’s assuming they do arrive, which isn’t always a given.
Solving these challenges with technology requires more than interoperable APIs. It needs a whole new approach to international payments.
We shouldn’t criticize open banking, of course; it’s driven by noble causes and, in time, will achieve great things. PSD2 and the API revolution is opening up the banking market, increasing competition and fueling a race to the top, where the best providers will win out by delivering more secure, more convenient and more cost-effective financial services to everyone.
Just don’t go thinking that the journey to digital payments starts and finishes with APIs. The reality is that they’re just a little taste of what’s to come.