The business relevance of Open APIs and Open Banking for banks

Since 2015, Open APIs (Application Programming Interfaces) and Open Banking have gained traction and have grown from being purely technical topics to being of business relevance for banking practitioners.

As exemplified by companies with a digital focus (e.g. Google, Apple, Facebook, Amazon, Salesforce, and Twitter) APIs is a major contributing factor in enabling these businesses to grow very rapidly in a relatively short period.

Opening up towards other market participants outside of one’s own organization has proven to create value for customers and to benefit the surrounding ecosystem.

Today’s Fintech movement and the revised Payment Services Directive (PSD2) provisions for access-to-account have accelerated the competition and digital disruption that are remodeling the financial services industry. Consequently, the financial services industry’s interest in Open APIs and Open Banking is gaining momentum and is not limited to payments.

This information paper, the result of an analysis carried out by the EBA Working Group on Electronic Alternative Payments and Innopay, explains the most relevant concepts and offers some strategic insights for bank business leaders, with regard to the business relevance of APIs. The key observation of this information paper is that Open APIs and Open Banking could change the way banks think about products and distribution, two key dimensions in every business. APIs and digitization in general allow value to be created in a distributed fashion, through an ecosystem of partners.

Co-creating value is likely to prove to be a major change and challenge for banks in the near future. However, banks may benefit from Open APIs and Open Banking as this could pave the way to enhanced innovation and customer relevance, industrial partnerships with the larger ecosystem of Fintech market participants, and, last but not least, compliance with the upcoming PSD2 regulation. On the downside, there is the risk of disintermediation, next to general reputation and compliance risks. New collaboration and revenue models could push banks back in the value chain leading to their contributing a smaller or less profitable portion of it.

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