Vincent Brennan, EBA: "Open APIs pave the way for Open Banking"

Why did the Euro Banking Association decide to create this information paper on the business relevance of ‘Open API’ and ‘Open Banking’?

The Euro Banking Association (EBA) has been looking into the implications, opportunities and challenges around electronic alternative payments since 2013 through a dedicated working group. The explorations of this e-APWG revealed that ‘Open APIs’ and ‘Open Banking’ could play a crucial role in overcoming the market fragmentation that has been identified as a downside of the recent proliferation of alternative payment solutions. Therefore, the EBA decided at the end of 2015 to study this phenomenon in more detail in order to better understand its strategic impact.

Application Programming Interface (API) technology has seen a major success in the non-financial world, with the likes of Google, Facebook and Salesforce relying on APIs to open up to third parties and give customers access to more and new functionality. With the growing interest in the Fintech world and the revised Payment Services Directive (PSD2) being implemented over the next few years, we felt this topic is now becoming extremely relevant for our industry.

How should business leaders look at Open Banking and Open API?

Distribution and product creation are the two key areas where business leaders will witness an impact of APIs and Open Banking. As such, they are not completely new to our business, but the ongoing technological and regulatory changes should increase their popularity in the payments context. Through the use of APIs, financial institutions in particular will be able to diversify and enhance their products in terms of services and functionality – they will even be able to provide direct access to raw data.

At the same time, Open Banking enables new forms of distribution and enhanced servicing capabilities, which will be highly scalable and secure. The distribution network as such can be expanded through third party partnerships.
Open Banking and the use of open APIs will put financial institutions in the position to decouple payment products from their distribution channels and to re-consider how to optimally combine the different functions for the benefit of their customers and their own business. Business leaders will be faced with fundamental strategic questions, such as:

• Who is distributing my product, which I have made accessible via my API, to existing and new customers?
• Who is creating the products that I will be distributing to my own customer base?

In answering these questions, financial institutions will find themselves at an important crossroads, where they have to consider their positioning in relation to four generic roles in the financial chain: integrator, producer, distributor and platform. These roles and their strategic implications are elaborated upon in our information paper.

What are the key observations in this paper?

In addition to their effect on products and distribution, open APIs pave the way for Open Banking. In the paper, we have defined Open Banking as an evolution of banking leading to more transparency, customer choice and customer control over personal data. APIs as such are an enabling factor for Open Banking.

Another important aspect is that the set-up and use of APIs in the financial world has to be embedded in a comprehensive governance framework, as we operate in a regulated industry and are dealing with valuable and private information. The industry is used to delivering such frameworks based on a collaborative effort, but specifically for APIs in a payments context, this exercise still has to be conducted and should be taken forward based on a highly inclusive and transparent approach.

So all in all, we are still ‘on the runway’ when it comes to Open APIs for our industry, but take-off is approaching fast.

How does the information paper relate to PSD2 and in particular the provision for Access to the Account (XS2A)?

The objectives of PSD2 include increased competition, innovation and transparency across the European payments market, while also enhancing the security of internet payments and account access. The directive has the potential to be a real catalyst for innovation. It has a number of important provisions around security of payments, pricing transparency and many other areas. The provision with perhaps the most far-reaching implications is the requirement for banks to open up access to their customers’ payment accounts to third parties upon the customers’ request. According to the directive, banks will have to enable third parties to access their customer accounts in a regulated and secure way:

• for information, such as on account balances;
• for the initiation of a payment on behalf of the customer directly from the customer’s bank account.

Although PSD2 does not explicitly require APIs, they are a logical delivery vehicle for its requirements. Business leaders who understand the strategic value of deploying a good open API strategy can help their organisations to turn regulatory requirements into business opportunities.

 About Vincent Brennan

Vincent is Head of Group Operations & Payments at Bank of Ireland where he is responsible for Business Electronic and Payment Services, Customer service & Fulfillment Operations and Credit Operations. He is also responsible for the Bank of Ireland’s participation in the Irish, UK & European Payments Industry including BPFI, Payments UK, LINK and the Euro Banking Association (EBA).

About the Euro Banking Association (EBA)

The Euro Banking Association (EBA) is a practitioners’ body for banks and other service providers supporting a pan-European vision for payments. The mission of the EBA is to provide payment professionals with a country-neutral forum for driving and contributing to the delivery of pan-European co-operative payment initiatives and business practices. The EBA membership includes over 180 institutions from across Europe and beyond.