The Banking Executive Magazine - Issue 150, June 2021

Open Banking Third Strategy - Launching Innovative Ventures: APIs and third-party relationships can help banks build new business models that operate outside the bank’s core business. This approach might include launching new busi- nesses devoted to a specific vertical market or product. OPEN BANKING TECHNOLOGY INNOVATION Open banking is a driving force of in- novation in the banking industry. We hereby identify two key innovation areas: FIRST INNOVATION AREA: API TECHNOLOGY INNOVATION The technical concept defining the open banking paradigm is API (Ap- plication Interfaces). An API is a stan- dardised protocol for computer programs to talk to each other and is integral to modern software develop- ment. The use of APIs range from web-based APIs, operating systems, databases, hardware, or software li- braries. An API specifies the connec- tion mechanism, the data, and functionality that are made available and what rules other pieces of soft- ware need to follow to interact with this data and functionality. API innovation can be in: • Data Transmission: the way the data is transmitted securely. • Data Exchange: the format of the exchanged data. • Data Access: access management that defines access rights, data that can be accessed, and how this data is accessed. • API Design: the way APIs are de- signed. • API Openness: The API's level of openness to third parties. There are various types of APIs in- cluding: • Private APIs: are closed APIs exclu- sively accessible by parties within the boundaries of the organisation. • Partner APIs: APIs that are open to selected partners based on bilateral agreements. • Member APIs: open to everyone who is a formal member of a com- munity with a well-defined set of membership rules. • Acquaintance APIs: open to every- one complying with a predefined set of requirements. • Public APIs: accessed by anyone, typically with some form of regis- tration for identification and au- thentication purposes. SECOND INNOVATION AREA: DATA DRIVEN INNOVATION Data-driven innovation involves the innovative use of customer financial data by banks, fintechs and social media giants. Aggregation and con- solidation of banking data are cor- nerstone of banking innovation platforms. OPPORTUNITIES Open banking is a key strategic com- ponent of the future of banking. Open banking offers many opportu- nities, these include: • Higher transparency of financial data: Through the use of net- worked accounts, open banking can help lenders get a more accu- rate picture of a customer financial situation and risk level in order to offer them more profitable loan terms. It can also help customers in getting a more accurate picture of their own finances before taking on debt. Open banking can also help small businesses save time through online accounting and help fraud detection companies better moni- ISSUE 150 JUNE 2021 the BANKING EXECUTIVE 11 Figure3: Three Winning Open Banking Strategies (Source: BCG Analysis)