Last year the European Union Council passed the revised Payment Services Directive (PSD2) that mandates the opening up of banks' payment APIs. The National Payments Corporation of India has introduced unified payments interface APIs, wherein anyone can initiate a payment transaction and create unique payments experiences.
We believe that open banking, a connected ecosystem of financial and non-financial services, is the future of digital banking. Now, whether that happens by initiatives taken by banks, Fintech competition, or regulatory mandate remains to be seen. But open banking technologies are certainly set to transform the business of banking. The fundamental promise of this model is to enhance the choice, utility, and experience that customers derive from their banking service providers.
Open banking will be driven by - apps, app stores, and extended developer ecosystems which banks and other providers will build around their APIs. Banks stand to gain immensely from this model. As more and more third-party services integrate with their open banking ecosystem, banks will gain access to even more data that they can channel back to fine-tune and personalize their customer experience.
An API-centric approach also enables banks to seamlessly connect with innovative services that leverage emerging technologies like wearables or IoT. The ability to add value-added services and expand into new niches will create new revenue and growth opportunities for banks. It also makes it easier for them to address niche markets more cost efficiently.
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