At a time when the banking industry is undergoing a wave of disruption, there has never been a better time for developers to consider a career in fintech. The introduction of the European Union’s Payment Services Directive 2 (PSD2) and the UK’s open banking initiative is throwing up an unprecedented amount of opportunity. A combination of technology advancement, economic uncertainty and industry regulation is also leading to improved support and prospects for developers entering the sector.
In the UK, fintech has become especially important and is viewed as a potential economic beacon amid post-Brexit uncertainty, as multiple jurisdictions vie for top fintech hub status. There is both a national fintech initiative and a number of provincial projects aimed at encouraging private sector investment and promoting more academic involvement. And these efforts are being replicated worldwide – from the US to Hong Kong and Singapore.
What’s open banking all about?
Open banking is designed to increase competition in banking and lower the barriers to entry, while the EU’s ‘PSD2’ directive is focused on creating a safer and more innovative European payments landscape. The legislation will give consumers the option to share their bank account data securely with ‘trusted third parties’ through open APIs. Trusted third parties can then access this data to create new insights and innovations for customers based on their transaction behaviour.
This opens up the banking market to a host of new competitors and also paves the way for increased collaboration with all types of organisations – from industry giants such as Amazon to niche solution providers offering complementary services.
In the UK, the nine largest banks have already been told to open up access to customer data to licensed fintechs. Other countries worldwide are also mandating a similar approach.
At the same time, banks are faced with a range of other IT challenges, including the need to:
- Deliver real-time transactions
- Digitise front and back-end systems and processes
- Connect their systems to a wider ecosystem through open APIs
- Incorporate distributed ledger technology or blockchain – seen by many banks as game-changing technology
- Move areas of their business to the cloud: to reduce hosting fees, be safe and secure, provide hardware support and maintenance that can scale
- Innovate and improve customer service using artificial intelligence.
By mandating banks to make their customers’ data accessible to third parties and encouraging the use of open APIs, open banking is designed to encourage innovation and champion collaboration – allowing developers access to banks’ precious customer data and their core systems upon which so many successful fintech apps are built.
The move to platform – on the rise
Platform is the business model of the 21st century. A platform connects consumers with producers in a way that benefits all, quickly and with minimal friction. The company that owns the platform needn’t develop the products or services being sold – it’s all about the connections. Uber’s a great example: it’s the largest ride service in the world but doesn’t own the cars.
Apple was an early adopter of the platform model. The Apple App Store is open to everyone. New apps can be posted rapidly and gain exposure to more than half a billion people from 155 countries. In 2017, iOS developers earned US$26.5billion in this way.
In contrast, financial services have been slow to adopt the platform model. Closed, legacy systems and requirements around availability and security have been major obstacles to innovation. For developers, working with banks has been difficult because the integration processes are so tough, messy and long. But this is changing. People today expect modern apps and services and they’re not seeing them fast enough from their banks, lenders and investors. As a result, we’re now seeing a real appetite from banks to move to a platform model.
To support the move, Finastra is backing a ‘platform-as-as-service’ approach – designed to give banks and developers the optimum environment to collaborate and build new applications. As well as providing connectivity to a standard set of pre-built and fully integrated open APIs, a platform-based approach can also dramatically optimize the software developer environment. For example, giving developers the ability to interact with the open APIs in a sandbox environment will allow them to experiment online in bringing data into their applications and to test the inputs and outputs in a safe environment before they’re deployed to market.
The benefit of the cloud and a platform-based approach is that it allows banks to decouple their APIs from their often-incompatible legacy systems and to create the API testing environment necessary for quality control and ease of collaboration with partners and customers. As a result, new apps can be fully tested and delivered to market much faster – helping banks deliver on the potential of open banking for their customers.
Developers have never had such a great opportunity to present their ideas and innovations to the banking industry. As you consider how best to invest your time – just remember, banks, lenders and investment firms need your help, now. Shall we get started?
Written by Mitesh Soni, Senior Director – Innovation, Fintech and Ecosystems at Finastra