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Interviews

The open questions of opening APIs – Interview with Dennis Van Allemeersch

Thursday 2 November 2017 | 09:28 AM CET

Dennis Van Allemeersch, the European Retail Payments Board: "Connection is about eliminating unnecessary steps in opening accounts, uploading and sending information, initiating banking services”

Dennis Van Allemeersch is a seasoned senior ecommerce executive and member of the European Retail Payments Board with extensive experience across EU in cross-functional leadership roles, and across sectors (payments, banking, travel, retail, classifieds). 

 

Eager to find out more about the current state of the open APIs market and how new applications can help foster innovation in the financial sector, we had a discussion with Dennis Van Allemeersch. The interview was also published in our recently launched Online Payments and Ecommerce Market Guide 2017

The European Central Bank launched the European Retail Payments Board in 2013 to foster innovation, competition, and integration in retail euro payments across the EU. As a member of this Board, could you elaborate on how this institution serves its purpose on the innovation side?

As a member of the board, I could say that we do need to foster innovation. Instant payments is an important facilitator for the merchant community. Also, we give advice on how to get rid of the EU administrative, legal, and technical infrastructure hurdles around the interoperability. For example, around the operability of the e-mandates in the EU. We did the same quite recently, presenting recommendations to eliminate the barriers for e-invoices as well as for the take-up of P2P mobile. It is our role to make sure that these platforms are as broadly used and interoperable as possible.

Open APIs have become a highly discussed topic nowadays, especially when relating to payments. In what sense do you consider that the application programming interface could lead to innovation in payments business?

We foster innovation by connecting and integrating applications. The open banking APIs will help streamline financial administrative processes by taking out unnecessary steps in connecting applications and boosting the take-up of added-value financial services. Innovative applications can, for example, help merchants with budgeting, invoicing, accounting, which, of course, is not core banking.

Having APIs and being able to connect those applications to have a seamless integration and to offer banking is actually boosting the take-up of these applications. Connection is about eliminating unnecessary and time-consuming steps in opening accounts, uploading information, sending information and initiating banking services. Thus, by freeing up time for end customers, it gives them more and real-time control over their finances.

Currently, there are somewhere between hundreds to thousands of open APIs developed by banks and fintechs. In what circumstances should banks take into consideration developing an open API?

"...it all boils down to power play and the simple question, will you integrate my API or do I need to integrate yours?"

Banks should develop open APIs to distribute their services and acquire new customers. However, there are also different players out there, like accountancies, invoicing firms, software companies, opening up with APIs and building an ecosystem around their core propositions. The question is which of those ecosystems will win. To put it simple, it all boils down to power play and the simple question, will you integrate my API or do I need to integrate yours?

Furthermore, if a bank has an open API and lets other third parties integrate its functionality, customers leave its closed banking environment and do the same things within the environment of your API partner, potentially reducing the relationship that customer has with the bank.

Security threats have forced banks to reconsider sharing their data treasure trove. Is there any chance to say that PSD2 might pose a risk for banks and account holders alike?

Open API means that a risk is possible; otherwise, it would not be open. So the discussion around the emerging of the open banking and the open APIs is on two levels.

1) Which data fields and corresponding functionality do I open up? Do I open up just for information extraction or do I also facilitate the making of banking transactions or account opening? Here is an increasing risk, especially when it comes to open accounts, which could lead to AML-, KYC-type of trouble.

2) After I open up, what would be the level of authorization? Is it just read-only (information retrieval) or do I also authorize the ability to modify data? From my point, a view is like a green field in terms of privacy, security, compliance considerations, discussions and regulation around that. The way banks are approaching this is very important and different at the moment.

PSD2 will lead to an increased development of open APIs for European payments ecosystem. How could merchants benefit from it in the context of European directive implementation?

Open banking APIs will facilitate merchants to upload, in real-time, banking transactions into e.g. their accounting or invoicing software. They will also be able to initiate payments from the accounting and invoicing software without exporting stuff into their online banking application (or the other way around).

Another application, for example, will probably be built around the credit score facilitation because through APIs, you can have access to customers’ transactional data and, if customers allow that, these applications will make credit scoring more efficient, possibly helping conversion at merchants’ site.

For consumers it will be, for example, of real help to do better budgeting, like personal financial management. Open banking API can synchronize your banking data in real-time with budgeting applications. Or set-up, for example, automated savings and investment plans with specialist providers.

In case of a successful implementation of PSD2 as of 2018, what could be, from your perspective, the new challenges and opportunities that banks, fintechs and merchants will further face?

The challenges here will be related to compliance for security and privacy. Another question is whether banks or fintechs APIs will dominate the emerging ecosystems. Ecosystems will emerge as the current Fintech surge leads to total disintermediation and many niche suppliers. One might argue that this is not handy from a customer’s point of view,  because a consumer would not want to open tens of different accounts, one for each specialist product.

"Having ecosystems which tie it at the back together is, in my view, a key trend for the coming years." 

Having ecosystems which tie it at the back together is, in my view, a key trend for the coming years. The biggest question is probably related to the role of bank. If we extrapolate the open banking API and integrations by API partners, then the pessimistic scenario is that a bank is just a back-end factory, left only with processing capabilities, aiming for compliance and regulation.

In this case, the partners will get the goodies and not the banks. They will have the customers’ contacts, they will have the ecosystem, and they will have nothing to do with compliance and regulations. However, under PSD2, API partners will of course need a license for being account information or payments initiation service providers.

The objective of the ERPB is to contribute to and to facilitate the further development of an integrated, innovative and competitive market for euro retail payments in the EU. 

This interview was first published in the Online Payments and Ecommerce Market Guide. Download the guide here to get all the essential insights into the ever-dynamic payments and ecommerce industry.

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