Will an open banking API kill commercial APIs?
Banks store terabytes of valuable client data, yet this information is not available to third parties. Although there is no official way to obtain the data from banks through an authorised application programming interface (API) — an interface allowing access and information exchange between interested parties — there are commercial solutions, which do the job without any approval from financial institutions.
In the majority of countries these third party APIs are currently the only tools giving access to customer data stored in banks.
Free API for the EU
In the European Union the situation is going to change dramatically very soon. The PSD2 directive, which will be fully effective in 2018, was created with open and secure access to banking data in mind. The objective of the PSD2 is to let third parties use the information stored in financial institutions and the only path to achieve this leads through an open API. This open API will be available to all interested companies and banks will have to share their clients’ data. The API is now being discussed and developed, but it’s not clear when it will be finalised, released and deployed.
The question is, whether this open, free and approved by the EU authorities API will threaten companies already offering similar commercial solutions and kill their businesses?
The API is the beginning
The open banking API will certainly make a lot easier for third parties to access the valuable information. Still, the API itself is not enough to make use of the data imported from banks. First of all, the API is just an interface, a kind of information pathway between two systems, and has to be employed by software, which tells the API what data is needed and then receives it for further processing. So, even when the API is open and free, an application which uses it has to be developed. Companies offering banking APIs right now have the whole solutions, not only APIs. They can sell their software or services even if their API is replaced by the open one.
The application or service for use with the API is not the only concern. The imported data along with other information has to be stored securely somewhere. It’s often better to use a proven third party solution equipped with all necessary security measures and having data hosted in a protected cloud than to build it in-house on your own and risk security breaches.
Commercial equals supported
Open and free code doesn’t also mean that commercial counterparts are instantly gone. We got free LibreOffice, OpenOffice, Google Docs and other productivity suites, but MS Office still exists and earns lots of cash for its creator. The same applies to image editors, graphics design applications, antivirus tools, and many others.
As with almost everything, service and support is the key, especially in businesses or other organisations where even short downtime is too expensive to happen. Companies are simply willing to pay extra money for not having to worry about security, maintenance, support and all these little things that make up for a peace of mind.
When an open banking API becomes reality, it shouldn’t mean commercial APIs become obsolete. Well, they might not be as hot as they are today, but they will still be needed outside the EU countries. Commercial APIs will also be necessary for parties not fulfilling the requirements of the EU for authorised users of the open banking API. And the companies, which today offer their own APIs with services or applications tailored for specific tasks, will have the expertise and ready solutions for organisations willing to use the open API. It’s also possible that the commercial APIs will be easier to integrate and offer a wider scope of features. They will be more customisable than the fixed open API.
And last but not least, the commercial APIs are already here, alive and kicking, giving your customers new experiences right now. The open banking API is yet to be born.
Konstantin Rabin, head of marketing, Kontomatik