APIs will shatter banks' data fortress
When the challenger bank Mondo collected £1m in crowd funding money in 96 seconds, it raised more than a few eyebrows. But the neo-bank’s success is emblematic of a new open API era in the banking sector.
Mondo is based around a mobile app offering that links to a debit card so customers can monitor their spending via graphs, charts and alerts.
The mechanism that drives Mondo’s personal banking app is an API feed. API stands for "application program interface", a set of data exchange protocols that specify how software interacts.
Mondo doesn’t have its banking license yet, (but hopes to get that accreditation next year), so all the money spent is pulled through to the app from your current account. Mondo’s smartphone-based approach is a logical extension of the banking API movement that is taking hold within the financial technology (fintech) community.
According to Frank Woods, the managing director of Bankstream, the momentum will only increase. “There are two things going on,” said Woods. “In the last four years the British government has directed that banks must open up their data and accounts to companies like Bankstream.”
The next thing coming, he continued, is the European Union’s new Payment Services Directive (PSD2), which comes into effect in 2018. It will push the EU’s API agenda even further by requiring banks in the EU to open up their information for certain businesses to work with, allowing access to authorised 3rd parties to perform aggregation services and payments. Access to the data will be controlled by the person whose account it is, as opposed to the bank that holds the account.
APIs should make capturing clients data much simpler for accountants. “If a client chooses to have their data sent directly from their bank to the accounting software, it eliminates the hassle,” said Woods. “It will be better quality data too, as it’s coming directly from source.”
At the moment, only three of the big four high street banks - HSBC, Barclays and RBS - provide data feeds to one or more accounting packages. Lloyds has no feeds at all. These existing data feeds are closed, however, so access is patchy and requires bi-lateral agreements with specific banks.
As a result of this situation - unless they rely on a third party “screen scraper” such as Yodlee - cloud systems like Xero and QuickBooks Online can only offer data feeds to users at specific points. Standardised, industry-wide API access, enforced by PSD2, will change this.
The post-PSD2 world will also unleash other innovations. As John Lyons, RBS’s head of strategy and business development, explained recently, “PSD2 is about giving customers choice. If organisations are viewed as barriers, this won’t add up to long-term sustainable commercial success. I think success will come to banks that are technically able and culturally willing to collaborate to build exciting new customer experiences.”