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UNLEASHING THE POTENTIAL OF APIS FOR DIGITAL FINANCE

Kris Sharma, Finance Sector Lead at Canonical – the publisher of Ubuntu

 

Cloud computing, big data analytics, artificial intelligence (AI), machine learning (ML), distributed ledger technology and process robotics are all playing a key role in reimagining financial services for a digital world. A growing number of financial institutions are drawing plans to adopt these technologies at scale as part of their digital transformation initiatives, to accelerate financial data processing, deliver mass personalisation and increase operational efficiencies.

Most organisations currently deploy a complicated mix of technologies, legacy software platforms, applications, and processes to serve customers and business partners. On their digital journey, financial firms will have to integrate data, processes and business functionality from legacy systems of record to this set of new technologies. Many businesses have tried to adopt various transformation approaches such as re-platforming and re-hosting, direct integration between applications, rip and replace, and deploying middleware technology to deal with legacy systems and their integration with new technologies. But each of these approaches have their own drawbacks and can limit the adoption of new solutions within the constraints of legacy technology debt.

An evolutionary approach to digital finance, however, will unify information and data without the need to merge operational systems. Application programming interfaces, or APIs, can overcome the challenges involved with adopting new technologies and more innovative solutions while integrating with legacy run-the-business applications.

 

Kris Sharma

Where APIs become a core piece of the puzzle

APIs are increasingly playing a central role in digital finance. They essentially bind different parts of the financial value chain together, even though the underlying components may be based on different systems, technology, or supplied by different vendors. Using APIs, financial firms can securely share digital assets while masking backend complexity, integrating software applications and focusing on maximising their proprietary strengths by sharing data, systems, and functionality with customers, partners and developers. This in turn drives digital transformation without a complete overhaul of existing infrastructure.

Since APIs are self-contained, they can be readily deployed and leveraged for innovation at speed, enabling financial institutions to introduce and integrate new features. When powered by the cloud, firms can develop, test and launch new services to customers quickly and cost-effectively, fuelling business growth. For example, insurance firms can make more timely offers by cross-selling home, auto and life policies. Financial institutions can leverage APIs to connect sources and use cloud computing to handle massive amounts of data, as well as AI and ML services live in the cloud, thereby analysing all this data faster and cheaper than they can on-premises.

 

Who is successfully using APIs?

Challenger bank Starling was designed and built completely on AWS cloud to deliver and scale infrastructure on demand. Additionally, by building a bank with open APIs from day one, Starling is natively compliant with the European Union’s Payment Services Directive (PSD2) directive.

According to ProgrammableWeb research, financial services is ranked highly in the fastest growing API categories, given the rise in digital forms of payment, an ever-increasing customer demand for connected solutions, and open banking initiatives. APIs are at the heart of the PSD2, the UK’s open banking mandate, as well as the Bank of Japan and the Monetary Authority of Singapore’s open banking initiatives.

Finastra’s Open Banking and collaboration: State of the nation survey 2020 finds that “86% of global banks surveyed are looking to use open APIs to enable Open Banking capabilities in the next 12 months”.

As APIs attract an ecosystem of developers, a financial API provider can encourage participation to fill go-to-market gaps and extend its services and data to new markets and use cases. Barclays is fostering collaboration and generation of new ideas through secure, innovative APIs. The Barclays API exchange has built an API library that is available to use by third parties to develop and test new products. Barclays and third-party developers work together to create, develop and test new product ideas before releasing them to the regular API catalogue. Similarly, Starling Bank provides a marketplace that enables developers to build their own products and integrations using its API.

 

Unleashing the potential

There is an opportunity for financial firms to leverage the power of APIs by bringing them together with digital technologies to broaden the possibilities for innovation and expand customer experiences. Financial institutions need to reimagine APIs as product offerings that will drive business expansion and increase revenues.

The future of digital finance will be driven by organisations building digital business models, redefining their API strategies and bringing new customer propositions to life using modern web architectures, best-in-class technologies and new ecosystems.

Finance

FINANCIAL INCLUSION WITHIN DIGITAL PAYMENTS

NICK FISHER, GENERAL MANAGER, SALES AND MARKETING UK, JCB INTERNATIONAL (EUROPE) LTD.

 

The shift towards an economy that removes physical cash has long been on the horizon in many regions. Sweden is an example of a country rapidly heading this way. Two years ago, just 1% of Sweden’s GDP was circulating in cash compared to 11% in the Eurozone, and research by the Swedish Retail and Wholesale Council showed half of the nation’s retailers saying that they probably would not accept cash after 2025.

 

In 2019 in the UK, cash payments decreased by 15%, although physical money was still the second most frequently used method comprising of 23% of all payments. The Financial Inclusion Commission in the UK states that there are over 1 million people that do not have a bank account, and the World Bank estimates that there are some 1.7 billion adults globally that still lack access to a bank account.

 

The finance industry has collaborated over the years to develop various credit products for affluent communities. These customers are considered a lower risk. However, institutions should continue to prioritise the advancement of services to serve an audience which remains – ‘unbanked’. Research by EY showed that financial inclusion could improve GDP by up to 14% in more rural, developing economies like India, and by 30% in frontier markets like Kenya. While the positive reasons for fully embracing digital payments and eliminating physical cash are plentiful, including lower payment processing costs for the retailer and customer convenience, physical cash provides the ‘unbanked’ with the ability to function day-to-day with a legal tender.

 

To establish digital solutions for the unbanked, payment players should adopt an inclusive mindset. The race towards a digital cash society will naturally get closer to the finish line with the passing of each generation, but governments could lend a hand to the unbanked by encouraging financial institutions to sponsor organisations that provide legal quasi digital cash products. In my opinion, the financial industry has an important part to play in developing low cost solutions to support the unbanked with authentication tools – such as biometrics and risk tools to manage real-time credit risk reporting with anywhere accessibility.

 

In both developing and developed countries, QR codes can play a superhero role as they offer simple, low-cost ways of processing payments on basic mobile phones. In June last year, we collaborated with FIS to enable cross-border QR codes in the APAC region. The ‘Worldpay from FIS 2020 Global Payments Report’ found that digital wallets, at the time, accounted for 58 % of regional ecommerce purchases and were expected to reach almost 70 % percent by 2023.

 

In developed regions, we are issued with a formal identification when we are born, no matter our circumstances, and this comes in the form of a birth certificate or, later in life, a passport. This does not always happen in developing countries as resources are often limited. Yet, advances in biometric technologies, such as fingerprint or palm vein may offer a solution to the requirement for proof of identity to open a bank account or to create a mobile wallet. Biometric organisations, payment leaders and innovators, such as Google Pay and Apple Pay, have partnered to make this a reality, despite the initial cost implications for development.

 

In summary, understanding the reasons for why some prefer physical cash, and others prefer digital cash, provides holistic learnings to achieve a society that ultimately uses digital cash only. Empathy is paramount for building customer-centric commerce. For me, at least, a world without physical cash cannot be considered responsible, or fair, until everyone can be accommodated.

 

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Business

THE EFFECTS OF JOB HOPPING ON YOUR RETIREMENT OUTCOME

By Neli Mbara, Certified Financial Planner at Alexander Forbes

 

Job hopping – defined as spending less than two years in one position –  is a very controversial subject. It can be an easy path to a higher salary but can also be a red flag to prospective employers, not to mention your future financial goals if you are cashing in your retirement fund every time you make a move.

When changing jobs, whether it be once a year or once every decade, one has to make decisions regarding career growth and retirement plans which affect one’s long term financial plans. One of these decisions is ‘what to do with my retirement fund?’

Neli Mbara

For many people, the first thing that comes to mind is using their pension money to pay off their debt. Alexander Forbes Member Watch statistics show that 91% of members do not preserve their retirement savings when changing jobs. As we are living in times where most household income is used to finance debt, most people use job hopping to gain access to their retirement funds, and use this money to pay off debt. However, a quick fix and instant gratification comes at a price, which in this case could be a delay in your retirement plan.

Your retirement savings are simply for that, your retirement, to pay you an income once you stop working.

 

Early access of your retirement fund can result in:

  • Not having enough money at retirement – this is simply because most of us are already not saving enough for retirement
  • Robbing yourself off the compound interest you could have potentially earned from the investment.
  • Never making make up for the lost benefit
  • Creating a bad habit that will delay you from achieving your retirement plan and desired income at retirement

It is easy to cash in your money from a retirement fund at resignation but it is much harder to make up for the lost benefit (capital cashed in plus interest). Calculations show that for you to make up the lost benefit depending on your retirement age and investment time horizon, you will likely need to invest more than double your contributions towards a retirement fund.

Since only 6% of the South African population are reported to have accumulated enough to retire comfortably, without having to sacrifice their standard of living, you will most likely have to invest much more towards your retirement fund to make up for the lost savings.

Therefore, leaving your retirement fund invested and preserved in a preservation fund is the recommended option when changing jobs, as this keeps you committed to your retirement plan.

Changing jobs is a life-changing event, and it is therefore important that you seek advice from a professional financial adviser who will guide you in your retirement planning ensuring that your retirement needs are taken care of, by providing solutions that help you to ensure your financial wellbeing.

 

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