Open banking and APIs: understanding an evolving universe

Published: Dec 2018

In this the fourth and final episode in 2018 of our Expert Voices podcast series we look at open banking and APIs. It’s still early days for open banking but already much is expected of the initiative, not least for corporate treasurers. We brought together experts from academia, treasury and banking, under the roof of this year’s SIBOS event, challenging them to explore the impact of these concepts and offer their latest thinking on the future of the financial sector.

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First to take the stand was Professor Markos Zachariadis, Associate Professor of Information Systems at Warwick Business School.

Treasury Today: Let’s start by hearing your own take on how APIs and open banking is, and will, impact the financial space.

MZ: Open banking is about sharing data, crossing boundaries between the banks and the clients who connect with them. Corporates should be looking at where the opportunities exist to establish closer and more deeply integrated relationships with their banks through the power of APIs. It’s going to mean pushing and challenging your banks and that is something we will see more of over the next few years as open banking evolves.

TT: How do you see the bank/corporate relationship evolving?

MZ: Open banking changes the competitive field significantly. Rather than thinking of a bank as a provider of certain services, corporates should think of them in terms of an extension to other services, through APIs and open banking, offered via a third party such as a fintech. Banks will need to consider what the extra services are that they can create, offer and be integrated into multiple client systems, as clients seek to consume those services in the easiest possible way.

TT: What roles are banks and fintechs playing in driving this corporate transformation?

MZ: They are, or should be, thinking in terms of the value they can bring to clients beyond their core value propositions. In doing so, clients can begin to add extra value propositions – delivered by their banks or from fintechs – that complement their own core products and which benefit their customers. These additional values should now be explored in a more systematic way by all parties.

Embracing change

For a corporate angle, Treasury Today called upon George Zinn, Corporate Vice President & Treasurer at Microsoft.

TT: How is Microsoft approaching the trend towards open banking and APIs?

GZ: Microsoft Treasury is really optimistic about open banking services. We’ve been working on a number of SaaS applications, with a panel of our banks, and we will take advantage of those APIs and deeply connect them to our applications within and on top of our Azure (cloud computing) platform. We’ve been working on this for some while and have developed and are very interested in partnering further in areas such as KYC, on-demand bank balances and payment confirmations.

TT: How will open banking impact corporate treasuries in general?

GZ: I think more treasuries will begin embracing the agile development environment using hybrid cloud offerings. The next generation of treasury software will be platform and device-agnostic SaaS applications that load from a browser. It’s imperative that treasurers start developing data analytics skills to take full advantage of this environment.

TT: What role do fintechs have in developing the open banking space?

GZ: They’re hungry to build great products and embrace APIs in ways that, if those APIs are standardised, many more people can and will use them to create value in different ways.

TT: And where is the most excitement in terms of the corporate community and open banking?

GZ: The era of Artificial Intelligence (AI) is upon us. It has potential to transform our lives. Gartner says 85% of enterprises will be using AI by 2020. Only about 25% have started or are planning AI initiatives in the near-term but we think companies will start to infuse AI into existing applications, creating completely new cognitive services. Initially, this will revolutionise how they engage with the fundamentals, for example, with receivables, KYC or bank account management.

New world order

To understand how the banks are supporting treasurers, and to gain some practical guidance in this dynamic environment, Treasury Today spoke to David Watson, Head of Americas Cash Management – Deutsche Bank.

TT: How would you sum up the impact of open banking so far?

DW: The idea marks a cultural revolution in financial services. The acceleration that PSD2 is giving to it in Europe and beyond is creating a situation where all banks have to be prepared to compete in a very different manner. Control over the client interface is changing, as billing off the data and infrastructure of individual and collective banks becomes possible. As third-party providers engage and build their own value-added products and services, it will drive more competition.

TT: What will be the effect on corporates and the way they connect and interact with banks?

DW: By connecting through APIs, it facilitates the onset of the real-time world. This is not just exciting in terms of speed but also the products and services that arise as a result. Being open 24/7 completely changes the context of the opening and closing balance on your accounts; it changes the idea of credit lines and intra-day credit or liquidity management. It even opens up questions around financial accounting and how a business takes stock of its position. It’s about to get very interesting!

TT: Will the 24/7 concept affect only certain industries and sectors?

DW: It will impact all but banks will not only be engaging with the corporate treasurer, treasurers will also be bringing banks into conversations with their product development colleagues. The Internet of Things is dramatically changing the way treasurers will look at payables and receivables as payments functionality is embedded into their organisations’ products. In practical terms, it means any industry involved in e-commerce or the manufacture of hardware needs to start thinking about how payments will be managed right at the beginning of their product design cycle, not the end.

TT: What is the role of fintech in driving these changes?

DW: To each other, the world’s largest transaction banks can simultaneously be clients, competitors and collaborators. This complex relationship now compares to our relationship with fintechs. It used to be that fintechs and banks were purely in competition. We all now understand that fintechs can bring a superior proposition to banks, and banks can use their networks and trust relationships to introduce those solutions to clients, openly and honestly, to the benefit of all.

Start the conversation

Change is the only constant in this fast-paced world. With the advent of APIs and open banking, ideas such as real-time treasury and bank agnostic solutions are coming to the fore.

Treasurers need to be engaged with the latest developments not just in their own professional sphere but also in the wider world, where new technologies are changing how and when their organisation’s customers wish to do business.

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