The government’s commitment to creating open application programming interfaces (APIs) for banks will help modernise the financial sector and improve customer services, experts have claimed, as well as putting pressure on incumbent lenders to become more innovate quicker.
Following a consultation announced in the Autumn Statement, plans to create a standardised API were given the go-ahead in yesterday’s Budget announcement, with a full report on technical requirements due by the end of the year.
The initiative is part of plans to spur competition in the banking sector by opening up data to fintech startup companies to create innovative new services, as well as enabling the creation of comparison sites such as those already available in the insurance sector.
According to Luke Scanlon, a technology law expert at international law firm Pinsent Mason, the project will put pressure on banks to become more agile and work more closely with the fintech community.
He said: “For banks, the challenges will be in ensuring that they themselves can innovate fast enough to respond to the wealth of information they could access about their clients through open APIs, or have the right relationships in place so that they can collaborate effectively with technology startups and SMEs that are already providing these services.”
Todd Latham, VP for marketing at fintech startup Currency Cloud, added that banks will need to adopt a more collaborative approach to their use of data.
“Banks have not traditionally been ‘sharers’ when it comes to technology, but as the financial services industry continues to evolve, they will become increasingly reliant on the flexibility that comes with use of APIs,” he said.
He added that the financial sector has lagged other industries in terms of adoption of the technology.
“Open API standards have revolutionised product development in many other industries, including music and retail, and have dramatically improved the customer experience,” he said.
“Today it is too hard for companies to integrate with banks, and standardising APIs will really help this burgeoning sector.”
The API project is expected take up to two years to implement, with costs estimated to range from “‘negligible” to “tens of millions of pounds”, the government has claimed. There are also considerations around data protection as certain financial information is made publically available.
But by opening up APIs to third parties, it is hoped that the new services can be created to benefit customers, such as make it easier for movement between providers.
The consultation response document stated: “In banking, APIs can be used to enable financial technology (fintech) firms to make use of bank data on behalf of customers in innovative and helpful ways.
“For instance, through external bank APIs customers can make use of applications on their smartphones which allow them to see clearly how much money they spend on food, and how their spending on food fluctuates through the course of a month or year.”
Comparison services will also be created, with the government already announcing that GoCompare will provide a current account aggregation tool to help bank customers shop for the best offer.
Pinsent Mason’s Scanlon said: “For consumers this is a positive step forward – they will now have more secure access to innovative financial services tools such account aggregation applications which give users a single view of their financial lives online in the one place.
“It also will increase trust in these services as users will no longer be required to hand over their log-in details and passwords, potentially compromising their online banking guarantees.”
The initiative will also support the UK’’s vibrant fintech startup community deliver new services, with the government claiming a standardised API will “enable fintech firms to make use of bank data on behalf of customers in a variety of effective and creative ways”.
“It will ensure that the UK remains a global hub and a world-leader for financial technology and innovation,” it said.