On payments, standards and dreams
I love technology. I consider myself an early adopter as I jump at the opportunity to try out new things that people come up with. The thing is, banks are slow to invent new technologies. In fact, they rarely do.
infrastructure on top of which this new ecosystem of innovative payment products has been built on.
When the revised Payment Services Directive (PSD2) comes into force in January 2018, it opens up a whole new world of possibilities for the bank customers. Customers own their banking data, so they should be able to access them using whichever licensed provider they want. With the customer’s consent, a third party provider can access the customer’s accounts to provide account information and payment initiation services. What this means is that if one wishes to switch their Netbank client, or wants to consolidate account information from multiple banks, a third party provider can create an application with this functionality.
Something old, something new
Now, if you’ve been using any existing third party providers with payment functionalities, this might not seem new to you. Several fintechs already provide account information services and payment initiation without bank APIs, and they work. However, the customer needs to give them their bank credentials. This is not ideal, but the issue can be mitigated by using APIs. With the arrival of bank APIs we can simplify the implementation of these types of applications for the fintech developers and make it more secure to the customer.
The difficulties I see with the current drive towards a banking API ecosystem are many, but a major one is that there is no broad standardisation for bank APIs. There are some attempts ongoing, but I feel it hasn’t taken that strong of a hold of the market. Banks are reinventing the wheel in isolation from each other. The dispersion in ideas on how to make this happen has been staggering. While an absence of standardisation has the potential to fuel innovation, it does leave the market (which is in dire need of guidance) in quite a pickle. The foundation layer will be uneven, and that will lead to higher implementation and upkeep costs for the fintechs. Furthermore, that will have an effect on the end user in the form of fewer services available. Remember, the fintechs are supposed to build their house on top of this foundation!
A dream of simplicity
What I want to see is a world where I can access my accounts through whichever service provider I wish. I also want to make the process behind payments invisible. Can we authenticate you? Okay, you can pay using your accounts: any one of your accounts, in any bank. It should be that simple. Right now we’re far from a multibank solution, but as with learning to walk, you need to take the first step in order to get anywhere. First we build the infrastructure: the API platform and single bank payments through our APIs. Only then can we attempt to solve the multibank issue. I’m sure that some fintechs might tackle it first, since it is not part of the infrastructure, per se.
The sooner we have a functioning, usable platform in place, the better fintechs can serve our customers. That is why we have taken the initiative in pushing our platform out there for the developers to give feedback on. Feedback matters, and it helps us in shaping an API toolset that is user friendly and extensive in its data coverage. Hopefully, at the same time, the European banks converge towards common API definitions.
Everyone should want APIs
It is interesting to see the PSD2 API landscape unfold as we come closer to January 2018. The potential added value for the end customer is undeniable. Unleashing account information and payment initiation to third party providers will likely enable innovation that would otherwise be impossible (or at least extremely difficult) within banks.
How this added value manifests itself to the customer is dependent on the applications the fintechs come up with. That in turn is heavily dependent on the interface to the bank. This is one of the cases where all of the parties have the possibility to gain. That is why it is in all the parties’ interest that the interfaces are well defined, stable, and most importantly, secure.
About the author
Ville Lauttamus is a technology enthusiast, an API advocate and a developer with a love for simple solutions. He is a Product Owner in Nordea Open Banking, responsible for the area of identity and third party consent management.
