A. Gostatuto g. 40-1, Vilnius, LT03163, Lithuania
The development of the FinTech industry has had a significant influence on the dynamics of financial services ecosystem. APIs became one of the principal tools that must be adopted in order to create a stable basis for the future success of open banking.
In this article we will talk about the new streams of revenue that are created by open banking APIs.
Along with enlarging the service range and fostering customer engagement, open banking APIs create profitable channels of digital revenue. Banks that choose to think differently and take advantage of new opportunities that appear on the market are the ones that have a higher chance to maintain the trust and interest of existing customers and attract prospect ones.
As open banking is becoming widely promoted, potential increase in digital revenue becomes crucially important for banks. In Europe, countries are obliged to follow the PSD2 regulatory standards and update their internal systems accordingly. The regulation was adopted in order to facilitate competition in the European banking ecosystem by requiring the banks in the region to create APIs and provide FinTechs access to customer-related data. Consequently, the number of APIs is already increasing and newcoming companies are encouraged to create solutions that will challenge traditional payment methods.
In the future, users might become able to transfer funds to friends and family members through Facebook and pay house bills using FinTech apps. In the US the trends seem to be following the same direction with Mint, PayPal, Venmo and other companies adopting innovative technologies. For instance, PayPal and Venmo that are P2P payment service platforms processed $41 billion in payments in 2015. Comparing this to JP Morgan’s QuickPay we can see that it only processed $20 billion in the same year. This is the perfect way to show how open banking APIs can potentially disrupt the existing order of the financial ecosystem. If banks decide to reject open banking initiatives, they will simply hurt themselves by missing out on the opportunities to maximize revenues through open banking APIs. Banks must also consider the security of data exchange methods. Such insecure methods as screen scraping should be substituted by open APIs that will also allow banking institutions to profit from referral and usage fees. Indeed, many tend to forget that open banking APIs are a highly profitable tool. Experts say that they can bring up to a 20% increase in revenue for banks, while those that refuse their adoption can lose as much as 30% to innovative FinTechs by 2020.
Banks must face the serious challenge that FinTech startups create by disrupting traditional bank-customer relationship. The first step taken must be the adoption of an open banking strategy with APIs being its core.