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Automation, APIs and Open Banking during Covid and beyond

Alex Reddish, CCO, Tribe Payments


Not all fintechs are created equal. There are, in fact, two main types of fintech businesses: those that have taken their business and digitised it, and those that have built their business digitally. It’s a subtle difference, and if everything had remained ‘normal’ the difference would have remained hidden for some time. COVID-19 has, however, served to bring the two into sharp contrast.
While some financial service providers have built API-led technology architecture, others have relied on aggregators to stick an “API bandage” on their business. But what’s the difference, and why is it important?

Digitising what is built vs building digitally
We’ve seen API-led connectivity growing in verticals beyond financial services. In fintech, it started with use cases around payments, spurred on by Open Banking. Now it’s driving new technical approaches across retail banking, insurance, mortgages and even into capital markets.

It’s worth considering why APIs are so important. Recent research has shown the average organisation has 900 applications, but only 28% of these are currently integrated. APIs link disjointed technologies and connect fragmented applications, building a more a cohesive IT infrastructure. This cohesion is vital for every player in financial services, not just fintechs — especially with PSD2 and Open Banking not just suggesting but mandating that APIs are the way forward.

Some firms have steered the way when it comes to building API-led technology architecture. Starling Bank and Ant Financial are good examples, but it’s not just limited to new fintechs—BBVA is over a century old but is leading the way for financial institutions that need to transform how they work. By being API-led, these businesses can grow faster, innovate more effectively, and provide more compelling experiences to their customers. They are not just digitising what they have built—they are building digitally.

Others are trying to digitise what they have already built. This approach may make sense in the short term but is a real risk over a longer period. In the case of banks, there is still a heavy reliance on outdated, legacy systems, many of which originate from the 1960s. Modernising these fragile systems can be a complex and risky process, involving a substantial amount of investment of time and money. Instead, many are using aggregators to make APIs possible—the underlying technology remains the same but can now be reached by API. The problem with this approach is that it usually very limiting, with APIs lacking much of the functionality they would have if built from the ground up, and that keeping decades-old technology in place is simply a recipe for disaster.

While some providers have been happy to kick the can down the road when it comes to legacy technology, the rapid changes wrought by COVID-19 means that this is now a more pressing problem than they previously realised.

The impact of COVID-19
Following the restrictions of lockdown, we’ve seen a number of approaches to solve its problems. On one hand we’ve seen banks recruit hundreds of additional staff to manage the sharp uptick of customer enquiries and to manage government disbursements. For many banks, problems have been solved by throwing manpower at the issue rather than clever uses of technology.

In stark contrast, fintechs have come together to create COVID Credit, an API-driven tool that uses Open Banking to help the self-employed self-certify lost income, and therefore overcome one of the main hurdles of administering potential compensation. An applicant can apply for help using a simple form, while APIs are used to do the heavy lifting to access and analyse the applicant’s data from their accounts, rather than make either the bank or the applicant go through the unnecessary steps of filling in a detailed form.

Banks could use automation and APIs to process thousands of applications from consumers and businesses but they simply do not have agility to do so. The APIs they have built to meet Open Banking and PSD2 regulations are often rudimentary. COVID Credit was created over a period of hours, not months, using the tools these fintechs already had available. They didn’t need to reinvent what they had, they just had to put it to a new use.

During COVID-19 and beyond, financial service providers will increasingly need to deliver hyper-personalised services, tailored to the individual, rather than one size fits all products that really suit no one. This change was always on the cards, but the “new normal” has accelerated things considerably.

How to change
Sticking plasters are no longer good enough. All financial service providers, no matter how big or small, no matter if they are a new startup or over a century old, need to create APIs that are fully functional, ditch legacy technology, and automate the boring stuff.

Automation means that providers can focus on delivering the tools, guidance and insight that customers value and will pay for. The industry is inevitably shifting towards data-led business models, making this change necessary to remain relevant, innovative and profitable.

To do this right and reap the rewards of APIs, providers must adopt a ‘modular mindset’.
Modular technology and API-enabled software go hand-in-hand. A modular approach means that infrastructure can be modified as required without causing a knock-on effect to the entire system and helps to safeguard against the troubles of upgrading IT infrastructure. APIs make easy interoperability possible. This approach isn’t compatible with legacy technology. It’s painful, but this has to be ditched as soon as possible.

This painful transition needs to be accompanied with a “disposable technology” approach that will avoid the legacy issue in the future. Disposable technology means that it can be easily replaced and upgraded piece by piece. Meanwhile, a modular approach means being able to harness APIs for many different parts of IT infrastructure, and rip and replace whenever needed.

The most important “how to” is simply not to do this alone. Building new systems in-house has proven to be a costly and time-consuming process and can limit opportunities when upgrading systems. Providers should look to partner with specialists, allowing them to focus on their own proposition.
COVID-19 has accelerated change in many areas—it would be a mistake to think that home working was the beginning and end of this transformation. All service providers need to change. Financial service providers have both an advantage thanks to fintech and a disadvantage thanks to legacy infrastructure.


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