11:FS Show with Tribe's Alex Reddish
Our very own CCO, Alex Reddish, appeared on 11:FS live LinkedIn show. He discussed Open Banking,...
We’re seeing API-led connectivity adoption growing across more and more industries. In fintech, it started with payment-oriented use cases – spurred on by Open Banking of course – but is now driving new technical approaches across retail banking, insurance, mortgages and even into capital markets.
In terms of trends, one of the biggest is interoperability – big companies need to connect to 100s of different applications.
Recent research has shown the average organisation has 900 applications, but only 28% of these are currently integrated. APIs link this disjointed technology, allowing businesses to connect fragmented applications, and build more a cohesive IT infrastructure. To that end, it's inspiring to see that 80% of companies are now integrating public and/or private APIs, and we can only expect that figure to continue to grow in the coming years.
Some firms like BBVA, Starling Bank and Ant Financial have built API-led technology architecture. They understand that the future isn’t transaction-led, it is data-led. Other firms are relying on aggregators to plaster an API ‘bandage’ on their business to allow them to better compete.
While this may solve some of their problems in the short term, it doesn’t address the wider need (an almost existential one) to rethink and rearchitect systems for a data-led economy.
API-led connectivity is an appealing approach because it has the power to enable functions that go beyond traditional software integrations. With API-led connectivity companies can become far more agile as it enables them to update their IT infrastructure more quickly and easily than ever before. And speed isn’t the only benefit; the modular nature of API enabled software means systems are more sustainable and easier to switch-out or upgrade when the time is needed.
API connectivity is working to tremendous effect across many different industries. This has become increasingly vital within financial services following PSD2 regulation and the wider Open Banking initiative in Europe. This required banks to open up their systems and allow third parties to access customer accounts via a single API (standardised across the industry).
With over 200M monthly API calls in the UK alone, driven by over 200 active service providers, the Open Banking effort has been a success with widespread consumer and industry adoption. And replicating this kind of success is appealing to businesses in other industries.
The benefits of using API-led connectivity are far-reaching, but to give an example, financial services is where we can see the advantages of APIs being used to their full effect. The past few years has seen the banking sector shaken up by nimble, tech savvy fintechs that are challenging traditional players who have failed to innovate. These players are taking advantage of API connectivity to integrate 3rd party solutions, build product marketplaces, and expand their services beyond their base offerings.
Thanks to the API-led nature of these businesses, they can grow faster, innovate more effectively and provide compelling experiences to their customers.
For incumbents, modernising and making the most of APIs can involve a great deal of cost and risk. For example, in the case of banks, there is still a heavy reliance on outdated, legacy systems, many of which originate from the 1960s. Modernising these fragile systems can be a complex and risky process, involving a substantial amount of investment of time and money. And as we saw with the outages TSB faced in 2018, getting it wrong can involve serious business implications. These complications shouldn’t be off-putting however, as the overall benefits certainly outweigh the challenges, but for some, innovation was moving at a slower pace because of the risk around migration to a new API-led technology architecture. However, reports have now been published stating Covid-19 is now accelerating adoption.
For challengers however – both offshoots of traditional banks and new players – these businesses won’t face the same migration problems as incumbents, as they were built API-first. For these businesses, the biggest risk is in the balance between ‘openness’ and ‘security’. While regulation like Open Banking and PSD2 has encouraged the sharing of data to increase innovation and competition in financial services, GDPR and the wider socio-economic concerns around privacy requires this data to be highly secure. There can be no compromise between the two.
To reap the rewards of APIs, businesses must adopt a ‘modular mindset’.
Modular technology, such as API-enabled software, can be modified as required without causing a knock-on effect to a business’ entire system and helps to safeguard against the troubles of upgrading IT infrastructure.
Companies should look to implement this ‘disposable technology’, which can easily be upgraded piece by piece. By adopting a modular approach, businesses will be able to harness APIs for many different parts of their IT infrastructure, but crucially, be able to chop and change key systems as they see fit.
Innovation should no longer be a case of ripping and replacing old systems, but instead an evolutionary API-led approach which can reduce the risks and costs associated with IT infrastructure transformation.
And this innovation shouldn’t be attempted alone – building new systems in-house has proven to be a costly and time consuming process, and can limit opportunities when upgrading systems. Businesses should look to partner with specialists in their own field via API integrations, which allows them to focus on their proposition rather than trying to be a jack of all trades.