APIs (acronym for Application Programming Interface) are an essential element for Open Banking and Open Finance and without their use, PSD2 would not have had the opportunity to transform the banking sector as has happened in recent years. Historically, however, these interfaces do not belong to the financial world but have been developed and marketed by large IT players. It is no coincidence that the first modern API was released by Salesforce in 2002, while at the same time eBay, Amazon, and Google were developing APIs that allowed developers access.
Without being too technical, APIs are nothing more than a software intermediary thanks to which two applications can communicate with each other. To better understand the potential of APIs and why they are becoming increasingly important in the world of finance, think about Google Maps, a powerful web mapping platform launched by Google in 2005 to simplify everyday mobility. To succeed in its goal, Google has created a commercial proposal that would allow third parties to build and 'embed' maps via API.
By using APIs and collaborating with thousands of third parties, Google has not only managed to radically innovate the way we move from point A to point B daily, but it has also created a solution used on many different apps: from mobility apps for taxis to health and fitness apps; from social media to apps for delivery companies.
In this sense, therefore, APIs represent a great opportunity for the entire financial sector which has the possibility of collaboratively building innovative solutions that can be incorporated into numerous new financial management products, payment services, access to credit solutions, and more.
In Europe, before the entry into force of PSD2 and the affirmation of Open Banking, all those players which developed services using users' banking data relied on the so-called 'screen scraping' technique, a form of data mining consisting in the use of software to automatically extract data from various websites and to publish this information, in a more elaborated form, on another site.
In recent years things have changed. Supported by regulations that are more sensitive to technological developments and are focused on the affirmation of open economies, an increasing number of financial institutions are understanding the value of APIs. Indeed, if managed correctly, APIs can help banks remain competitive in an increasingly global and digital market. When it comes to Open Banking and Open Finance, an effective implementation of APIs can have concrete benefits, such as helping:
According to recent estimates¹, over the next few years, the definitive rise of Open Banking will lead to new revenue opportunities for more than $400 billion globally. Thus, banks will soon have to choose between riding the API wave, thus adapting to this new reality, or hoping not to experience significant challenges. More broadly, with Open Banking rapidly evolving towards Open Finance, Embedded Finance is estimated to be worth more than $7 trillion by 2030².
Looking beyond the borders of finance, companies from all sectors are starting to learn what APIs are and how these interfaces can be used to create end-user-focused solutions, develop new business models, increase profits, and be more agile on the market. The so-called API Economy makes it possible to support all these business objectives, making it easier to monetise the use of data and applications, while creating increasingly innovative and modular services and products.
Within a world that is moving towards real Open and Smart Data Economies (for example, smart cities, smart mobility, smart homes, Internet of Things, cloud, and big data), the use of APIs can only become more intense, just as Open Collaboration initiatives between companies operating in different sectors will become more and more frequent. In this context, data sharing will be key to developing products and services that make the lives of citizens and businesses simpler, more fluid, and safer.
Ready to catch the Open Banking wave? | Accenture, 2021.
The Rise of Embedded Finance. | Dealroom, 2022.