Todd Latham, CMO and Head of Product, Currencycloud
As a company based upon a suite of APIs, we take no convincing on the significant role that these connections can and should play in the financial services industry. But with the revised Payment Services Directive (PSD2) drawing ever closer, when established financial services players will be expected to open up their APIs for integration with third parties – we were interested to see what our FinTech peers had to say. For this reason we’ve once again collaborated with the Payments Innovation Jury Report. Composed of insights from 70 payments and FinTech innovators from across the globe, the report offers an interesting insight into what we can expect from the industry in the near future.
Clearly, we are not alone in the view that API technology will be a key component in the future of our industry. The report uncovered that 95% of the jurors agree that APIs will play a role in the payments market going forwards, while 73% foresee them having ‘a major role’.
APIs are already playing a leading role in the rise of the “building block economy” across other industries. Companies can combine services such as AWS, Google Maps, Stripe and Twilio to build innovative new business models fast and without the overhead of expensive proprietary systems. The majority of contributors to the report are clearly keen to progress the opportunities that APIs present to our market. So what’s behind the hesitation from others?
The experts pinpointed a number of potential challenges which they believe are currently inhibiting established payments firms from publishing APIs. These include the fear of loss of brand awareness and revenue and a broader lack of understanding around the level of investment required to make open APIs a reality. This points to a need for more regular and open conversations between FinTech and established payments providers, to navigate this new era together. Success for FinTech in this building block economy does not have to equate to failure for established players. Traditional players, which are burdened with legacy technology and bureaucratic processes, can radically reduce their time to market and cost of development for new digital product lines by integrating their APIs with digital enterprises.
Interestingly, security concerns have risen, perhaps in line with the growing threat from global cyber criminals. Juggling rigorous security with innovation is always a challenge, but staying in the comfort of the dark ages isn’t the answer to effective survival and competition in today’s digital landscape.
Undoubtedly established payments services brands will be worried not only for their own security practices, but for the level of trust they will need to have in the security of digital partners. If we are to prove ourselves to be deserving of this trust, FinTech companies need to start actively working to reassure established players. Security shouldn’t be a burden for our tech developers, but an integral part of the technology throughout the build, implementation and testing stages. In this industry, no one can afford to deprioritise security.
One concern that has diminished in recent years is that of the compliance burden associated with opening APIs. While this stood out as the number one inhibitor for publishing APIs in 2015, this challenge has slipped to last place. This is perhaps due to regulation in Europe providing the support required for opening APIs. Even though PSD2 is limited to Europe, it seems digital payments players from across the globe feel optimistic that regulation is increasingly supporting them in building the future of payments through the increased support for APIs. 90% of jurors from the Americas agreed that APIs will have a major impact on their market, while the figure stood at 89% in Asia and 73% in the Middle East and Africa.
No one is pretending that wide-scale opening of APIs will be an easy task for financial services, but the growing view is that these small pieces of software are not to be ignored. It’s time for the whole industry – from the newest start-ups to the most established brands – to have open conversations, air their concerns and uncover the opportunities, if they are to navigate this Brave New World together.