The UK government is currently working with banks and Fintech firms to have a detailed framework set out for an open API standard ecosystem by the end 2015, in a move it claims will empower consumers and boost competition. (Download a PDF copy of the UK Government report here)
The standardization that ensues is envisioned to allow the development of third-party apps that are compatible with the systems of all UK banks, and that can securely use consenting customer banking data. While such an open API will allow Fintechs to build apps for the banks’ customers who opt to take advantage of the open API, it would also speed up the innovation process. Additionally, it will also buy banks (finally!) more time to figure out how to effectively enter into the digital 21st century by focusing on their strengths.
This is in line with the PSD2 calls for an open bank API. So the question of an open API ecosystem is not one of IF but WHEN.
An open ecosystem as a market share firewall for banks
Could this be the firewall that the banks have been so desperate for? Would the banks pull the trigger on Fintechs? Imagine a “mutually” beneficial digital ecosystem. It would involve Fintechs as content/platform providers and banks as distributors. This would instantly render banks as essential to Fintechs – since banks will be re-positioned as the leading players within such an ecosystem due to the infrastructure and existing customer base. Clearly banks would leverage their customer base.
What such a digital ecosystem would do is force Fintechs to compete against each other in their bid to get access to the banks’ customer base. One thing is very clear: Banks would provide what they’re traditionally known for – risk management, infrastructure management and customer affiliation – while Fintechs would provide the innovation. In this scenario, innovation would not come at the expense of the banks – as Fintechs would be competing against each other. Would banks be neutral in this internal Fintech brawl? Or would they pick sides? Does this scenario remind you of another ecosystem? OK, hint: App Store!
Do you think such an ecosystem would eventually relegate Fintechs into being “junior” partners within the online banking and insurance experience? Rather than continuing to use a fragmented approach to the changing landscape, banks would now be in a position to dictate the direction that innovation takes. Could this mean that the banks’ customers would eventually end up being in the driving seat to choose functionality and UI that best suits them?
While I’m convinced that collaboration is the near-future of Fintech, I still think banks and Fintechs need to focus on building a truly mutually beneficial and sustainable ecosystem.
A fantastic example is the Open Bank Project API in Berlin! Fidor bank and Seed bank also have similar initiatives of how collaborations should be structured.
To paraphrase Donald Rumsfeld, there are known knowns but rather too many known unknowns. While other UK government initiatives have made London the Hollywood of Fintech, we just have to wait and see how this initiative will affect the pace of Fintech innovation. Would it be an adoptable trend for other markets outside the UK? Let me know what you think.
I will be talking to the guys at the Open Bank Project initiative soon to get a sense of where their initiative is headed and all their innovation efforts.