Open Banking PTBR

Executive Summary Amongst many banks, legacy infrastructure is about halfway through a modernization process, lines of business are coming on board, but there is still lack of a strategy that leverages APIs to create the financial ecosystems of the future. Returning to a focus on strategy, and on working with fintech through a niche, or microservices, approach may provide a way forward. The Banking APIs: State of the Market reports have been published for the past four years. With growing realization across all industries that APIs were enabling faster product development, easier partner onboarding, more efficient internal processes, and the development of ecosystems, banks like other industries began to take note. In addition, emerging regulations like the European Second Payments Services Directive (PSD2) made it a necessity for banks to consider how to add APIs to their stack. In the four years since our first report, several waves of change have occurred. Initially, banking APIs were a technical consideration, then they became a regulatory requirement. Now, they are finally being recognized as a business opportunity. This year's survey with fintech and banking staff, and our interviews with banking executives, are showing that the open banking market is still at the very start of its implementation. Many banks are still halfway through technical reorientation and legacy modernization programs. In these banks, APIs are being created to replace SOAP and point-to-point internal services by teams that are predominantly made up of engineering staff. With new REST APIs being put in place, banks move towards instituting a range of internal governance processes, which were often lacking just one year ago. As these internal governance processes — including standards, style guides, automated CI/CD workflows, and governance and architecture committees — are introduced, banks are then requiring business units to lead any new API creation. It is at this stage that the banks move their mindset from seeing APIs as a technical issue to being ready to consider an ecosystem play. But amongst the banks we spoke with, some API leadership teams are still advocating for the potential of APIs, while others are experimenting with building new products. Discussions around new business models and what banks want from an ecosystem approach are in the very early stages. Meanwhile, the biggest threats to banks are still the fintech startups and tech giants. Fintech startups are quickly building new customer-facing products, and are now beginning to collaborate with other fintech and challenger banks so that they can offer a broader suite of services. Meanwhile, tech giants like Amazon have payments infrastructure in place and are able to offer loans as well as payments functionality. Regulations are emerging in many jurisdictions following Europe's lead. This will place additional pressure on banks to adopt open APIs, whether they see the business advantage or not. Already, PSD2 regulations have forced several banks in Europe that feel they have strong customer relationships and the ability to build new mobile experiences that continue meeting customer expectations, to recognize that APIs will bring a new type of competition to their market. They are recognizing they need to position themselves as the ecosystem hub in order not to lose their core customer base. One approach banks can take is to have a Strategy-with- APIs first approach and to create APIs using a RISK model that fosters an ecosystem model to make open banking a successful manoeuvre. Strategy-with-APIs: Banks need to look at their wider business goals and the overarching market of regulation, fintech, and tech giants and ask: how can APIs help us achieve our business goals? RISK: Banks can then focus on one niche (or microsegment) at a time to build out experiential APIs that can be shared with fintech third party providers. Banks can Rally, Invest, Steal or Kill fintech in these new ecosystems in order to build the open banking platforms of the future. The pieces are now all falling into place: banks have the technical capabilities, they already have the customer base, and the regulatory environments are supporting them to leverage APIs effectively. The next two years will see if banks are ready for this new challenge. 04 State of the Market report 2018

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