The Digital Finance Revolution, Open Banking, and APIs

Technological innovation is disrupting the financial industry. In the last couple of years, many fintech banks and digital finance startups have emerged. These new firms, like Simple, Chime, Varo, and Moven, claim to offer consumers more choice, better service, and lower costs. Meanwhile, global giants like PayPal and Amazon are exploring offering select banking features. Nonetheless, many of the big players in fintech are also transforming digitally.

What Is Driving the Open Banking Movement?

Application Programming Interfaces (APIs) are at the heart of the digital finance revolution, along with the shift towards open banking around the world, meaning that banks are increasingly giving third parties access to their financial data. First developed in the UK, open banking has since spread to the EU, directly stimulated by regulatory initiatives. These include the Second Payment Service Directive (PSD2), which compels banks to provide their customer data to third-party providers (TPPs) through open APIs.

PricewaterhouseCoopers predicts that the US will be the next market where open banking will hit (the different regulations that US incumbents operate under has been making open banking adoption slower). PwC cautions that this shift comes with major cyber risk due to the expansion of the attack perimeter for financial institutions. PwC argues that when open banking is facilitated through open APIs, however, it is significantly safer, and recommends, along with other safety procedures, that financial institutions and their partner TPPs in the US use APIs for open banking.

The Advantages of Open Banking for Fintech and Incumbents

There are significant advantages to open banking for both fintech and established legacy banks. For legacy banks, as Business Insider points out, they are able to “leverage open banking to partner with fintech and TPPs instead [of competing], and thereby remain competitive in the rapidly evolving industry.” For fintech (also known as the challengers), open banking is a critical factor in propelling them forwards. Openness is an essential enabler of the development of new apps and services, which essentially gives them their raison d’etre. The main goal, from the point of view of the challenger banks, is to give account holders a greater degree of options. More options enable a new level of customization, improving customer experience and a digital, mobile-first approach.

Previously largely sidelined to retail banking, APIs are beginning to be viewed by the wider financial sector as an essential part of the journey towards an agile use of web technology both internally and externally.

What Benefits Do APIs Offer Digital Finance?

APIs can act as a key driver of flexibility and extensibility for digital finance, offering various benefits:

• APIs improve interconnectedness by allowing siloed systems to connect with one another via a specific set of protocols. APIs are essential for the functionality of Banking-as-a-Service (BaaS), which connects fintech and other third parties to banks’ systems directly through the use of APIs;
• APIs can help facilitate specific customer transactions, such as blocking a credit card;
• APIs can be used to standardize products and services across regions;
• APIs can play an important role in unifying services between multiple interfaces and products;
• Open (or public) APIs drive innovation as any developer can access and use them to create something new;
• Open banking through APIs can allow financial institutions to securely provide other financial institutions and third-party providers with seamless access to, and communication with, customer data.

API Examples in the Financial Sector

Rapyd and Stripe

Indeed, APIs are at the center of most fintech apps. Rapyd, for instance, a new fintech-as-a-service startup backed by the payments giant Stripe, is constructing “a Swiss army knife of financial services,” including payments, currency transfers, ID verifications, and card issuing for companies to use all, according to TechCrunch, “by way of a single API.” Stripe itself is a suite of payment APIs that powers commerce for enterprise via transactions such as collecting sensitive card data, tokenizing customer information and accepting payments with browser payment APIs, such as Apple Pay, Google Pay, Microsoft Pay, and the Payment Request API.

Capital One

In recent years, commercial banks have also started to move APIs to the heart of their digital strategy, such as Capital One’s DevExchange developer portal, a banking, capabilities-based API platform, which gives developers the opportunity to add Capital One’s APIs to their own platforms. The bank’s vision for DevExchange is to offer “powerful APIs that go beyond banking,” offering additional use cases to traditional banking transactions, so that its services include an array of options, such the ability to request historical transactions or participate in reward redemptions.

BBVA

In 2018, the Spanish bank BBVA launched its BaaS platform, Open Platform, in the US, making eight of its APIs commercially available. This enables third parties to build new products and services for customers and clients by accessing and integrating banking data of the customer (with their permission) into their applications. In opening up APIs in this way, BBVA became one of the world’s first major banks to deliver open banking. According to Derek White, Global Head of Customer Solutions at BBVA, “This is a customer-led business opportunity.”

Why Monitoring APIs Is Essential

Monitoring APIs, however, is critical as there are, from issues around dysfunctional integration to problems with data processing causing an application to slow down to an app potentially failing entirely.

Moreover, as APIs are increasingly used to power complex integrations and frequently involve the use of multiple service providers, if there is a bug or error at any level, it can impact the entire workflow. One error has the potential to bring all business transactions to a complete halt. API performance monitoring, therefore, needs to track each step of a transaction’s lifecycle and enable end-to-end visibility into API transactions.

The Benefits of Constant Performance Monitoring of APIs

As momentum for open banking grows, API monitoring is ever more essential for the finance sector. As we’ve seen, APIs are the central digital enabler of the open banking movement, powering a host of new transaction types and creating a communication channel between financial service providers, hence their running smoothly is a necessity.

Constant performance monitoring of APIs can:

• Identify points of failure across multiple components of the delivery chain, including third-party API integrations and network connectivity;
• Reduce MTTR by cutting out blind spots;
• Enable easy testing of API functionality;
• Verify your APIs are returning the correct data;
• Gain visibility into microservices within your infrastructure;
• Ensure API integration is functional and available worldwide;
• Track the health of third-party APIs and implement your SLAs.

API monitoring helps you evaluate end-user experience based on API performance and ensure that the API integration on your site is functional and available to users from any part of the globe.