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THE DEMOCRATISING FORCE OF THE API ON FINTECH AND BANKING

by: Ben Goldin is chief technology officer at Mambu

 

APIs are the rocket fuel for financial services innovation and value creation, being a cost-effective way to create nimble ecosystems in which – ultimately – fintech and banks will be equal partners, writes Ben Goldin

It’s almost exactly 20 years since Salesforce launched at the IDG Demo 2000 conference. What’s this got to do with fintech and banking? APIs.

While APIs have been around for almost as long as computers, it was arguably Salesforce that first appreciated how critical they were to building value. Salesforce worked out that by giving easy access to its technology, innovation would be stimulated, with the subsequent rewards benefiting all those involved. Its move was quickly followed by many in the tech industry, including eBay, Facebook and Amazon.

 

From Wall Street to Silicon Valley

Fast forward to 2020 and we’re seeing a similar epiphany in banking – one that will have consequences which are just as far reaching. It pivots financial services away from its home on Wall Street towards Silicon Valley, as banks increasingly use APIs to access enabling technology to truly transform the experience they can give customers and the rewards they can share with investors.

Banks have traditionally spent a fortune on armies of in-house developers to write bespoke software to solve the same problems as do their rivals, including meeting changing customer demands and complying with new regulations – duplicating efforts and wasting time and money. This has left them sometimes struggling to compete with nimble challenger banks and the platform companies that are increasingly encroaching on their space.

But the regulators who have pushed for open banking, and the customers whose fast-changing demands are being fuelled by the possibilities of our digital age, have between them forced traditional banks to innovate faster and collaborate with third parties. The banks’ embrace of APIs has given them access to the new technology offered by fintechs – such as artificial intelligence in fraud mitigation or credit card decision making technology that helps create value – all on a software-as-a-service (SaaS) basis. You might ask what has taken them so long.

Fears over security and banks being locked into their legacy IT systems are partly to blame. No one wants to change the engine while the plane is flying. But the unwieldy nature of old APIs was also a problem. Today’s APIs are different: secure, lightweight and easy to understand. Developers don’t need special training or lengthy instructions to access and implement them; portals allow them to conduct road tests and start working quickly. And the vast majority comply with the 3:30:3 rule: 3 seconds to understand what the API does; 30 seconds to identify the entry point and how it is used; and less than 3 minutes to create an account on the portal, gain access and start using the API.

 

Fintech rocket fuel

The rise of APIs that match this rule has helped the fintech industry to grow quickly and allowed challenger banks such as BUNQ, N26, Monzo and OakNorth to create business models and customer experiences light years away from those previously offered by incumbent banks.

Rather than working alone to provide a one-stop-shop for financial services, these challengers collaborate with a carefully selected group of dynamic fintechs that provide best-in-class operations so the bank itself can provide best-in-class services. Using APIs to connect the technology that delivers functionality such as reconciliation, credit checking and cyber security at the back and account opening, robo-advisers and regular savings at the front, these banks compose exactly the type of bank they want to be.

Incumbent banks can see how nimble APIs make their new competitors. They know they can no longer be monolithic financial-service providers because that business model is broken. What is more, it’s been proven that bolt-on technology doesn’t compromise customer security and fidelity. Traditional banks understand that APIs make it possible for them to leverage all their advantages – trust, security, customers, data, sector knowledge and brand – and work with fintechs to build effective and efficient ecosystems that cover customer onboarding, treasury, compliance, straight-through processing and offer bolt-on products such as insurance, forex, investor advice, just as the challengers do.

And APIs mean they can gradually replace their old technology and pursue an evolutionary rather than revolutionary digital transformation. The icing on the cake is that the SaaS approach is much cheaper – providing far superior returns on investment. Citi and Barclays see a return on equity of 13 per cent and 9 per cent respectively, while a challenger such as OneSavings Bank enjoys ROE of 25 per cent.

 

The democratising force within fintech and banking

A trend towards specialisation seems likely to gather pace. This means that rather than being all things to their customers, many banks – new and old – will increasingly focus on a handful of technologies that allow them to do fewer things, but each one well. That might be providing services such as cashflow analysis and short-term instant loans to SMEs or life insurance and robo-advice to high earners, or small loans for consumer purchases. The fintechs with which they work will be partners and each bank will eventually become just one of the participants within an ecosystem of payments, insurance, biometric identity checking, credit-score providers and more. As the banks work with many fintechs, so the fintechs will work with many banks. Ultimately, APIs will be the democratising force within fintech and banking.

Before the decade is out, ecosystems of partners will be the norm and banks will no longer be the lynchpin, just one part of the set-up. The result will be lifestyle banking where financial services are embedded into customers’ lives exactly where they are needed – such as point-of-sale loans or instant overdrafts. Banks will essentially have become technology companies. A bank that offers SME services, for example, could be embedded into the customer’s accounting system – more like a widget than a bank – so it can analyse exactly what is needed when.

But perhaps more importantly, these ecosystems will be nimble and ready for change. By 2030, banks with their ecosystem partners will be able to adapt in minutes or hours – think Facebook or Amazon. They will address the new efficiently and effectively. And it’s all thanks to the API.

 

Banking

WIRELESS CONNECTIVITY POWERING BANKS OUT OF THE STORM

FINANCIAL SERVICES

Graham Brooks, Strategic Account Director, Cradlepoint EMEA

 

It’s now clear the pandemic is going to have a long-term effect on the British high street. Back in April high street retailers, shop owners, and bank branch employees were wondering: ‘How many weeks will this last?’ By July, ‘weeks’ were swapped for ‘months’. Now it’s clear that life on the high street will be affected for longer than initially expected. Many brands have already shut numerous stores or are looking at the prospect of administration. Bank branches, too, are experiencing the brute force of the pandemic’s impact.

For a while, temporary measures in response to lockdown restrictions appeared to suffice. Flimsy plastic barriers and paper signs were printed and tacked up on the walls. But with the long-term impact now clear and the prospect of another year of social distancing, bank branches must transition to more permanent solutions. This means less people and more machines – contactless services, new cash deposit systems, and digital signage.

Digitisation is no longer an option for banks to ensure a continuous flow of new customers. It’s an imperative. In this article, we explore how wireless technology is going to help them facilitate that change.

 

Graham Brooks

Relying on connectivity for optimal service

Traditional banks now face their biggest challenge in history: digital-only banking. Over two-thirds of participants in a 2020 study planned to transition to a digital-only bank in the future. It’s therefore vital that traditional banks running physical branches update in-branch customer experience to compete with the new pack on the prairie. Reliability plays a big part. So does trust.

The future of in-branch experience lies in technologies such as IoT, VR/AR, and AI, all of which are highly data-intensive. Reliable connectivity is therefore critical, and banks should be shooting for zero-downtime connectivity, allowing no room for gaps in service.

To do this, banks can deploy Gigabit-class 4G LTE (LTE Advanced) or 5G adapters that bridge to a traditional ethernet connection, providing a wireless option to the wired-line router. Then, in the rare scenario where wireless connectivity is down, at least one of the WAN connections is always guaranteed to be live. The router has the autonomy to determine when failover is necessary.

Better still, the reliability of modern Gigabit 4G LTE and 5G connectivity now means that failover is often unnecessary. A branch can, therefore, run its network independent of a wired-line connection and benefit from the security and agility of a resilient wireless network, while still providing enterprise-grade connectivity.

Branch network reliability, in this way, will support the bank’s reliability as a whole. In turn, this will fuel the higher standards of customer experience needed to compete with more agile digital-only banks.

 

IoT bridging gaps in communication

The first organised response to stop the spread of the virus around the world was social distancing. While transparent screens can be used to block transmission, the overarching effect of these measures has been a loss of communication capabilities. This will affect banks like it has everywhere else, if not more as a space where interaction is so important.

IoT technology will be core to overcoming these barriers. Digital signage, kiosks, and surveillance cameras will all contribute to improved communication and security, and a better customer banking experience. But to enable such extensive use of IoT devices operating on a single network, banks must ensure they can accommodate such high levels of data transfer. Using Gigabit 4G LTE connectivity to extend its services beyond traditional network infrastructure, banks will achieve the required levels of bandwidth.

 

Cloud management simplifying in-branch communications

With high volumes of data being transferred across the network, security and availability should be at the top of the agenda when digitising bank branches. But these are not always easy to implement, especially in an environment with several complex networks of endpoints.

For example, marketing teams need to push personalised content to customers on digital signs and IT teams need to set visitors up on a guest WiFi network. These operations require the guarantee of security and availability, with trust and the customer experience at the core.

Wireless networks excel in this aspect as they can employ the benefits of a cloud-based management system. Cloud-based systems make it easier for bank staff working from home, who can access the same assets and applications from their sofa as they would otherwise have in-branch. The service is the same.

Cloud management systems also provide improved network visibility, giving IT teams endpoint information from across the network as it happens. With security patches being updated on devices simultaneously, leaving reduced time for opportunistic attacks to exploit known vulnerabilities.

Equally, by using a hybrid Gigabit 4G LTE network in tandem with a wired connection, businesses can achieve simplicity from an otherwise complex challenge. The primary wired network can be used to transmit any sensitive information securely, while a separate network using the Gigabit 4G LTE connection runs other in-branch operations.

The branch’s network, in this way, is ‘air-gapped’. The secure data being processed by the operations team runs on an essentially separate network to that of the marketing team’s content. The network will also increase its ability to process more information, with its workload spread out.

The simplest solutions are often the best. In this case, exploiting a hybrid network can address the complexities of security and availability when employing enterprise-grade connectivity.

 

Good things come to those who prepare

As the pandemic continues, banks will have to be flexible in their approach to branch management. But in the long run, it’s clear that digital investment will be one aspect they cannot neglect. How they approach this challenge is also important. But with an inherent reliability, flexibility and security of enterprise-grade wireless edge solutions, branch services will be on their way to sustainable digital development.

As with most things, good things come to those who prepare, not wait. Those banks that adopt innovative technology early will come out on top.

 

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Banking

WILL COVID-19 ACCELERATE THE TRANSITION TO BANKING ALTERNATIVES

Gael Itier – CEO & Founder at Akt

 

What will the world look like once the pandemic is over? At present, no one can be sure given the rapid pace of change experienced over the past year. However, there are signs to suggest that our social and economic structures are shifting, and what is certain is that the world will undoubtedly appear very differently than it did pre-COVID.

For example – the five-day working week – a staple of modern society – now appears to be under threat due to advancements in workplace technology and an enforced successful period of working from home.

Instances of such change are happening across the entire breadth of society, and the world of financial services hasn’t escaped this. Over the past few years, Europe’s fintech sector has boomed as entrepreneurs have worked to provide an alternative to the traditional banking system. Generally smaller and more agile than the incumbents, fintech companies have been able to create services that mesh better with a hectic modern lifestyle. However, given the changes that are likely to result from COVID-19, will we soon see consumers switch at an even greater rate?

 

The changes brought forth by COVID-19

The financial sector was already undergoing significant change before the pandemic. Regulatory evolution and advancements in technology had already brought forward measures such as open banking, and as previously mentioned, changing customer demand had led to increased competition and a number of new entrants to the marketplace.

Gael Itier

COVID-19 has acted as a catalyst, rapidly intensifying the pace of some of these changes. For example, from the perspective of financial institutions, many found themselves having to promptly shift to a model of working from home after having been previously pessimistic to its benefits. This effected the delivery of both front and back end services, as organisations needed to invest time and resources into adapting to the new normal.

The move toward home-work also changed the outlook of the consumer. Now spending less time in busy town centres, the average consumer will spend more time managing their finances using digital and mobile channels, rather than traditional in person services. Furthermore, with the global employment market on especially unsteady ground, many consumers are looking for flexibility in the services that they use to able to adapt to any unforeseen change.

 

Why the fintech sector has been perfectly placed to take advantage

Whereas traditional banks needed to drastically adapt their ways of work to not being in the office, for many new fintech companies this was already the standard. As such, some customers of traditional banks will have found themselves receiving comparatively worse service than they did pre-pandemic. Many customers will have managed their finances in traditional brick and mortar locations. As such, with consumers having to rapidly shift to using websites, mobile apps, or over the phone – a number of the incumbents may not have had the necessary capacity in these services to deal with the increased demand, and this will have resulted in bottlenecks. Newer fintech’s will often have no physical presence at all, instead having built up their services with digital outlets in mind. As such, they were perfectly placed to adapt to this shift.

A similar pattern will be witnessed should a customer or business try to open a new account or access additional finance. Traditionally, this will require the applicant to produce physical documents to verify their identification, and their credibility as a borrower. With brick and mortar locations either remaining closed or operating at a severely reduced capacity, this inhibits the ability of many traditional banks to process these new applications, again resulting in a backlog. Some fintech’s meanwhile have used technology which allows for this process to be done digitally, utilising automation to ensure that the process is smoother.

Many consumers – having been forced to employ technology to manage their finances – will have also been impressed with the greater convenience, and will seek to switch to using digital forms more permanently. This means that what they look for from their financial service provider may change. For example, this shift will see aspects such as the app user experience, digital account opening, and remote claims become more important in determining what service to use. While the traditional banks can and do provide these services, in many cases they are hindered by having to build on top of legacy software, and a lack of expertise when compared to newer fintech’s, many of whom will have been established with these features in mind. This will mean that they’ll be well placed to take advantage of the newer consumer demands due to the higher quality of their features provided.

 

Making money go further

The average consumer will now be seeking ways to make their money go further. With the global economic outlook looking precarious to say the least, most people will look to sure up their finances. This is as the pandemic has made many people realise that it isn’t viable to live paycheck to paycheck, and has shown the importance of having a financial backup plan and the benefits of having another source of income, such as owning income producing assets. Even though more people are now looking to involve themselves in their finances and investing, the barrier to entry is still very high for those starting out as investors when it comes to accessing and effectively managing investments. As such, a banking platform which allows consumers to manage all their financial assets in a single place, utilising technology such as automation to grow the value of these assets will be very well placed to capture market share.

COVID-19 has already redressed the world in a fashion that was once unthinkable. We’ve seen mass upheaval to the way we live, work and spend our money, and the financial sector has had to scramble to meet expectations as society changes around it. This has led to the growth of a number of new companies who’ve risen to the challenge by offering greater flexibility and a better standard of service to consumers. While for now this appears to be the start of a revolution, only time will tell whether this will continue as we emerge from lockdown.

 

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