One of the most exciting trends in fintech is the rise of the Application Programming Interface, or API. This is causing a positive disruption and is here to stay.
APIs are a common technology used in IT development, and function by enabling developers to build software that communicates with an external service, to integrate elements of that service into the software. An example of how APIs are used in web development is an online form that links to a fund's CRM (eg. Salesforce).
For third party developers to use an API of an external service, the API must be “open” – or allowed to be accessed by third parties under specified conditions.
Banks and financial institutions accrue massive amounts of data on customers, markets, and financial trends, but have traditionally been very reluctant to share this data outside of their organisations. This has meant that the use of APIs in the finance industry has remained relatively rare. However, recently there has been more and more pressure on large banks and financial institutions to provide open APIs and access to third party developers, and it is this gradual opening of access that is allowing more and more innovation in the finance sector.
In Europe, new legislation has been introduced which will force banks to allow open APIs to share their data securely with third party companies. Banks will be required to implement these changes over the next two years. This legislation has marked a major moment of disruption in the finance industry in Europe as the big banks can no longer jealously guard their data, and small fintech startups become limited only by their imaginations in the innovative services they can offer.
In fact NAB has already taken steps to embrace open APIs and has recently launched an API Developer Portal which makes a number of their APIs publicly available for third party developers to connect to select sets of data. The platform will start with two APIs that provide data on NAB branch and ATM locations, and NAB foreign exchange rates.
Open banking APIs also present a huge opportunity for superannuation funds. The area super funds will likely benefit most from APIs is in their online member portals. These portals provide secure environments where sensitive data can be shared safely. However, funds will need to ensure their portal providers allow the use of APIs. If they don’t, funds should put pressure on their providers to reevaluate this, or consider switching to another provider. Otherwise they will run the risk of being caught on the back foot as other more agile funds adapt to the coming innovations.
There are also opportunities for APIs to be used in the public sections of super fund’s websites, to enhance calculators and investment sections with live financial data, or to create entirely new tools and gadgets.
Super funds can also benefit from using non-banking APIs that are already widely available. A great example of this is the ability to integrate online forms with APIs so that form submissions are sent directly to a fund’s Customer Relationship Management system (CRM). A few CRMs that currently offer this ability are Salesforce, HubSpot and Marketo.
It will be very interesting to see how APIs continue to impact the finance industry in Australia in the coming years, and it’s definitely an area that anyone in the industry should be keeping their eye on.