We need banking, we don’t need banks: Future of opening APIs and PSD2 in banking

“Banking is necessary, banks are not” was one of the arguments made by Bill Gates back in one of his interviews in 1994. It seems to be coming true now, as across Europe (including the UK) regulatory changes and technological developments are pushing banks to open up access to their data. 2018 may well be a game-changing year for retail banking. As PSD2 (Revised Payment Service Directive) is implemented, banks’ domination on their customer’s data and payment services is about to ebb away, all member states will have implemented its rules into national law. Doing nothing is not an option.

In the current banking context, with the advent of fintech's and banks embracing innovation, the way we bank has now changed. Most of the banking activity is managed online, we don't need to go to banks anymore. Do you remember when you last visited your bank? This has been possible because the banks are being more customer friendly, innovative and getting digitalized.

Recently, I attended APIDays conference in Paris. , The two-day workshop had a lot of open discussions about challenges about Open APIs and PSD2 from experts who are involved in this transformation process. In this article, I am emphasising more on Open API community in the banking and financial sector, which is gearing up for the next challenge and why I think it will be a vital part of a Bank?

What is Open API’s?
API is an Application Programming Interface (API) which is a set of clearly defined methods of communication between various software components. And ‘Open’ APIs is publicly available services that allow anyone to connect to services.

Open APIs will support third parties to access all information about banking products, such as customer account data including transaction history, bank balances etc. e.g. Customer can get a benefit to see all account information from Open API's once these services are enabled in a single window.

What is PSD2?
On November 16, 2015, the Council of the European Union passed PSD2. Member states will have two years to incorporate the directive into their national laws and regulations

The Payment Service Directive (PSD2) is administrated by European Commission to regulate payment services and payment service providers throughout the European Union. The PSD2 purpose was to increase pan-European competition and participation in the payments industry also from non-banks, and to provide for a level playing field by harmonising consumer protection and the rights.

The upcoming implementation of PSD2 will require banks to open access to customers’ account data and give third parties providers' the ability to create/initiate payments.

Just remember PSD2 is not an API.

Here is an example from OpenBankProject. The sandbox enables all the basic information to access PSD2 APIs,

In brief, PSD2 permits bank customers, both consumers and businesses, to use third-party providers to manage their finances. It might be possible that you may be using Apple, Google, Facebook or any other service providers to pay your bills and you will analyse your spending making Person to Person (P2P) transfers. Banks, however, are required to provide these third-party providers access to their customers’ accounts through open APIs. This will allow third-parties to create financial services on top of banks’ data.

Big Challange with Open APIs, PSD2?
To enable the digital payments market in Europe, one of the big challenge to transform the standards for the Bank APIs. Banks' really need to think to use access protocols, JSON message format, authentication, certificates, tokens, two-factor authentication, OAuth, OpenID security rules and Access to Payment Accounts (XS2A) etc. before going forward.

Below are some of the payments APIs and there are many players in the market now (e.g. PSD2 sandbox) which is defined to create a payment requests.

Bookmarks

BBVA Open APIs (https://goo.gl/6uaQho) - API Market Sandbox
The Open Bank Project (https://goo.gl/GCBE27) - API Explorer
UK Open Bank Project (https://goo.gl/W4vu5n) - Open Bank APIs in UK
Bankin (https://goo.gl/ihG3k4) - Developing solutions allowing its users to manage all their bank accounts in a single interface
CapitalOne (https://goo.gl/jl0awB) - Bank Account Starter API
OpenID Foundation (https://goo.gl/FZBZq7) - Defines API security standards
Final Draft technical standards PSD2 (https://goo.gl/ItCXNp) - Final Draft technical on PSD2 from European Banking Authority (EBA)
API landscape (https://goo.gl/UuQmcY) - Business processes as an API
References:

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:JOL_2015_337_R_0002&from=EN
https://psd2-apiexplorer.openbankproject.com
http://www.consilium.europa.eu
http://ecomgrowth.fi/mobiilimaksaminen-tulee-mullistaa-maksamisen/