APIs are eating finserv

While financial services is undergoing a fundamental technological transformation enabling completely new business models, the downside is that many new terms are being thrown around without a common framework for how to discuss these new business models. Banking-as-a-Service, Banking-as-a-Platform, API Banking, and Marketplace Banking all sounds great, but what do they mean and how are they different? Pascal Bouvier offers some solid definitions and explanations, which should help everyone get on the same page.

Now that we have those definitions out of the way, let’s focus on how finserv firms are approaching the use of APIs in providing new services. The clear leaders in this space are the large payments companies, with Visa, Mastercard, and American Express all offering multiple open APIs. Common uses are to allow payment gateways, ATM finders, and fraud solutions (identify lost/stolen cards, fraud scoring, geolocation, etc.). However, Mastercard seems to be a bit further ahead in the data/analytics offerings with the Audiences, Market Insight, and Media Measurement APIs.

The fit with open APIs and card companies is clear – they are data companies who are finding ways to leverage their most valuable asset. Mastercard has had public APIs for 6 years. However, banks have been much slower to embrace the potential applications. However, thanks to some startups and regulatory changes, this will be changing.

Not surprisingly, European banks will most likely be leading the way. Part of this is due to the new Payment Services Directive (PSD2) which is a regulatory directive to drive innovation across the European payments landscape. Most experts agree that this will require banks to offer open payment APIs to third parties.

So far, BBVA has made the biggest bet on open APIs in advance of any regulatory requirements. The BBVA API Market platform offers APIs both from parent bank BBVA in Spain, and US-based BBVA Compass, though BBVA Spain has a greater selection, including PayStats, which provides access to aggregated purchase data from BBVA cards.

CBW Bank, more well-known for its role in partnering with Moven and Simple, has also been building APIs and may be launching some industry-specific API marketplaces in the next few months. However, it stands relatively untouched by other competition here in the United States (though others such as NCR have opened API developer portals).

I expect to see much more activity in the United States next year, if banks grasp that the landscape is shifting faster than they realize. Microsoft, which has long-held ambitions in the banking sector, lists three reasons why banks should care about APIs: