When it comes to innovations, I always want to know where things are going. It’s the way how I'm steering my business in the anticipation of future changes. When it comes to hardware, I always look towards the military first. They think strategically about the use of new technologies, such as drones, satellites, and LIDAR. For software, I’ve learned to pay close attention to what banks are doing. They were the first to acknowledge the strategic value of data warehouses – setting an example for other industries. The same happened with computer-telephony integration, which enabled the big call centers. By the way, this became a big driver behind service oriented architecture and multi-channel architectures. They pioneered mobile banking applications. On it goes.
Do you want to know what innovations banks are investing in today? Well, I happen to know that a lot of banks are heavily investing in new ways of doing business. A concept called 'Open Banking' has ignited a fresh wave of new business models. In this case, ‘Open Banking’ got enacted by authorities, who were looking for ways to make it easier for new initiatives to gain momentum. With too big a barrier of entry to the financial industry, they diagnosed, chances for innovation were slim, while the potential was enormous. If only it would be easier for the people to adopt new financial services. That’s how Open Banking got invented. As a policy to drastically lower the friction for introducing better and cheaper financial services. First in Europe, but now in many countries around the world.
The policy that got enacted in Europe, the Payment Services Directive 2 (PSD2), has created an open competition by enforcing banks to not only start providing APIs, but also to grant access to these APIs to every third party licensed by the financial authorities. In fact, there are licenses for different kinds of third parties – payment services provider, account information service provider and payment initiation service provider – each having distinct responsibilities and permissions. So now, if you have a great idea for an app to help people manage their finances, you can be sure that all the banks have to share their information – provided you get a license and your users grant permission.
Understandably, many banks started implementing this directive reluctantly – imagining the minimum level of service they could get away with, while still avoiding the hefty penalty for non-compliance – up to 4% of global turnover. After all, open competition is a threat. Soon, however, forward thinking banks started to get clever at the opportunities. Imagining their own innovations to better serve their clients, increase their market share, and enter new markets. ABN AMRO Bank, for instance, is actively embracing fintechs in order to, in their words, bridge the world of sneakers and the world of suits, and quite successful at it.
WSO2 Open Banking platform
WSO2 Open Banking is a solution that helps banks comply to the new legal requirements. It offers a rich API Management platform, including secure authentication, back-office integration, and third party onboarding. It has the WSO2 components inside, which are tuned to the specific requirements the regulators have set. And it has the industry defined APIs on board.
In working with several banks implementing Open Banking, I’ve personally experienced how pleasantly surprised these banks are with the ease of opening up. Wiring up an API to their backends and reliably exposing back-office functionality proved not to be as problematic as they assumed. That’s a big benefit of working with mature technology and widely accepted standards. No wonder that this experience has shifted their minds and sparked a ton of new ideas. And you know what? The WSO2 Open Banking platform is perfectly equipped to help bring those ideas to fruition.
Chances are that, as before, innovations like these will trickle down from the financial industry to pretty much every other industry. I fully expect this to happen. APIs are taking the digital world by storm. Want to learn from the banks too? Then this is how APIs can become your Actionable Playbook for Innovation.
- Imagine how much bigger your market and your market share could be if only you were successful and effective in collaborating with third parties in your industry. In joining forces, you become so much stronger. Take an outside-in view. Find a shared purpose. How can you please your audience? How can you take away barriers, and create new vistas? There is so much potential to create smarter services. Think Smart Devices, Augmented Reality, Machine Learning, Intelligence of the Crowd, Alternative Data, just to name a few.
- For each type of third party in your network, define an API, if possible, in true co-creation fashion. It’s deceptively easy to create an API definition, largely thanks to the broad adoption of the Open API Specification. However, creating a well-designed interface tuned to the needs of various adopters, and building a community around it, is no small feat. But it will be well worth the effort.
- In parallel, start building your own Open Collaboration Platform. If you want to move fast, consider adopting Connext, our secure and well managed integration Platform as a Service. It gives you a head start, and lets you tap into our expertise in designing, implementing, operating and maintaining integration technology. It has all the building blocks available to securely manage your APIs and intelligently connect them to your services and those of your business partners, to safely onboard your third parties, and to reliably host your APIs.
Of course, it doesn’t stop here. Most likely you’re to analyze a gap between the services you’ve got in place and the APIs you aspire to offer. You might, for instance, need some advanced statistical analysis to extract meaningful information from a continuous stream of events. You might have to support distributed transactions. You might need to integrate microservices as well as legacy systems. Make use of smart services in the cloud. Perhaps you need to create a stream of events from an existing datasource. You might be eying towards GraphQL, WebSockets, AWS Lambda, gRPC, NATS or AVRO. There is so much going on these days. And we are still with you.
Unfortunately, this is way too much to discuss in a brief blog post. Therefore, we wrote an entire white paper on the topic. Our Advanced API Management guide has in-depth information on all the modern integration technologies and how to put them to good use. We highly recommend you download it, poor yourself a drink, find some quite place, and start exploring. We can always talk afterwards.