Balance Sheet as a Service

Revolution by Mandate Bank adoption of APIs has been more driven by regulatory pressure than an enlightened view of the place of banks in a world of digital platforms. Open Banking in the UK, PSD2 in Europe and similar initiatives around the world have pushed banks to deliver services through API that they may not otherwise have chosen to offer. The API revolution in banking will have started off on the wrong foot if banks see these developments as unwelcome compliance projects that provide a platform for disintermediation. Electronic Banking Redux The API revolution in banking needs to take a different path than the development of bank specific, proprietary Electronic Banking systems. A digital platform faced with the choice of integrating with 100 different bank APIs or a single Fintech may choose the latter at the expense of the banking system. The same realities that led to the agreement on ISO20022 will at some stage drive standardization of bank APIs. The question is when the light-bulb moment will arrive. Standards bodies, multi-banked corporates and regulators should create the impetus towards standards in retail and wholesale banking APIs, including core credit provision. “APIs are not just another channel - we know from other industry experiences that they are a lifeline. Banks have adapted to several transitions in the way they interact with customers but the adoption of API driven platform strategies is the most consequential yet, for both external APIs as well as for internal APIs. We see a thriving future for the banks that adopt an ‘API first’ approach and take advantage of the inherent security and scaling capabilities of the modern technology platforms.” Chae H An, CTO, Global Financial Services, IBM The Core at Stake The world has not waited for banks to deliver services, including balance sheet, through API. Some digital platforms perform their own lending to buyers and sellers at massive scale through dedicated payment arms. Others integrate with Fintech lenders through proprietary APIs. A small number of banks have taken an early lead in being able to deliver balance sheet through API to digital platforms, while others have enhanced card offerings with Equal Payment Plans (EPP) that convert charges to installments. This is decision time. Banks can double down on existing routes to deliver balance sheet to the digital economy. Others can partner with Fintechs to deliver balance sheet through their new routes to market. One way or another, banks will need to find ways to maintain and grow the lending relationship with the customer, even if the customer is embedded within another digital platform. “There was a time when banks wanted to build and maintain all their systems in-house, but trying to do everything can leave the core exposed to nimble competition, which we are beginning to see in digital lending. Divido provides established banks with an API driven way to connect balance sheet to merchants and consumers through our global point of sale finance platform.” Christer Holloman, CEO at Divido Platform Lending Standards Citi is working with merchants, marketplaces, banks and standards bodies to drive the development of standard APIs for banks to deliver instant consumer finance to digital platforms. By taking this lead, Citi seeks to map out a positive path through the early days of platform banking. The future of banking need not be a rearguard action driven by regulators forcing banks to open up their back “Merchants are looking for reduced cost, friction, fraud and access to standardized, responsible finance on a global scale. Banks have the opportunity to adopt new technology solutions like cloud, APIs and the latest authentication solutions to embed themselves into digital ecosystems.” Jason Macklin, Director of Payments EMEA & APAC, Microsoft