Banking is a software industry: time to walk the walk

It’s hard to believe how much the business world has changed in the five years since Marc Andreesen’s famous essay for the Wall Street Journal, ‘Why Software is Eating the World’.

His central idea, that “every company needs to become a software company”, seems obvious now but at the time few people had even heard of Uber or Airbnb, or considered the disruption companies like them would wreak on incumbent industry players.

In 2017 it’s the financial industry’s turn to be a disruptor or be disrupted. If you were in any doubt, then the fact that even Australian politicians are talking about it should convince you.

And it’s not our tech-savvy Prime Minister raising the spectre of technology disruption but the Australian House of Representative Standing Committee on Economics talking the tech talk.

The parliamentary committee’s new ‘Review of the Four Major Banks: First Report’ has recommended the creation of a data sharing framework for consumers’ and small businesses’ banking data by July 2018.

While the committee talks about “a data sharing framework”, what we are really talking about is what the financial industry calls “open banking” and what the technology industry calls “APIs” (or application programming interfaces).

And if you think that sounds like a lot of technological gobbledygook, you’re just going to have to suck it up. Because as Marc Andreesen so presciently predicted, every company is a software company now. So you’re going to at least have to learn how to talk the talk.

If you also want to walk the walk, you’ll need a flexible and extendable API platform – technology infrastructure that enables different companies’ software systems to work together securely online – that can keep up with the pace of change. But if financial organisations think that the main driver for data sharing is legal or regulatory compliance, or that they can wait until July 2018 before they start rolling out API capabilities, they probably need to question their strategies.

The parliamentary committee’s recommended July 2018 compliance date is almost irrelevant. A much more pressing deadline for an API platform is the go-live date of the New Payments Platform (NPP), which is expected in the second half of 2017.

APIs provide the ultimate weapon to leverage the NPP. The move to real-time payments – with reduced transaction costs across the economy enabling a huge amount of value creation – will unleash a wave of innovation. Most will come from outside major financial organisations. The easiest way to leverage that innovation is to open up systems access to software developers via APIs.

The real question for most financial organisations is not if or when but how to provide APIs.

It should be quick and easy to provide new APIs. That may include open APIs that are mandated by governments. But more important are custom APIs that go beyond what may be required by regulation to deliver new and innovative services.

There are dangers for organisations that choose inflexible API management platforms. Mature, commoditised, specialised API management tools – that are easy to use and proven to work – are already on the market. Given this, building your own API management system or extending your Enterprise Services Bus becomes a high risk, expensive strategy.

If the parliamentary committee report demonstrates nothing else, it is that data sharing, open banking and APIs – call it what you like – is evolving rapidly. Organisations should realise that the innovation required to make them successful will not be in API technology, but in the data, services and customer value that their APIs can help deliver.

A version of this blog was first published in Asia-Pacific Banking & Finance.


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