Opinion

API – the lead protagonist in the platform revolution

By Michael Moon

The financial services industry needs a platform that is transactional. It should focus on the exchange of value, paying particular attention to reducing transaction costs, driving utilisation and leveraging optimal partnerships and governance

  • API can help transform relationships with customers
  • Open platforms offer enhanced value creation where customers interact to remove duplication, friction and transaction costs
  • ISO 20022 significantly adds value to the ecosystem, as it easily adapts the distributed ledger technology and API

The modern application programming interface (API) is revolutionising business models around the globe. It is also creating a significant impact on the lives and expectations of the everyday man on the street.

A man sitting cashless in a cab, posting real-time birthday wishes to friends and family living on the other side of the world while also paying bills, ordering groceries and researching vacations is a typical example of how API has changed people’s lives.

On one hand, goods and services are moving across the ASEAN region quicker than ever before, and this means value transfers must be friction-free, safe, secure and compliant.

The financial services sector also continues to undergo digital disruption and change. To remain relevant, players must act on both the potential of APIs to transform relationships with customers and the role of interoperability, standardisation and security as catalysts for innovation.

Unlocking the strategic benefits of APIs

If the financial services sector were to continue creating delightful customer experiences, it must look towards a customer-centric model. Open platforms offer enhanced value creation, whereby two or more interdependent groups of customers interact to remove duplication, friction and transaction costs. All these while simultaneously forging connections that could not have occurred, or would have been too costly to take place outside this approach. 

One key example of this is cross-border transfer. It relies on an array of interconnected relationship networks, underpinned by global conventions, standards and secure connectivity. This virtual connectivity is expanding exponentially, thanks to cloud and API technology.

An open platform sitting at the heart of the financial industry acts as the basic rails on which API-supported third-party providers such as SWIFT take center stage to design, build and supply services.

Businesses, fintechs, financial institutions and their customers can take advantage of Australia’s new payments platform (NPP), a working model designed by SWIFT, to improve customer experiences and services. Over 80 participating institutions are said to be part of this platform and at least 50 organisations are currently utilizing the API sandbox and framework.

Security – a challenge that can be overcome

Open APIs are fundamental to open banking, which grants customers greater access to their data and makes it easier to move data around. Removing dependencies on proprietary products and empowering access to both in-house and third-party development can unlock unprecedented levels of agility, flexibility and innovation. Open banking, however, does raise concerns around security.

It is imperative that the core architecture must be open, trusted, innovative and resilient, with its reach ubiquitous and its operations robust. It must also enable smart, embedded, instant payments, 24/7 from every account to every account, everywhere.

The Monetary Authority of Singapore was the first regulator in Asia Pacific to release an open banking guideline in 2016, setting out a comprehensive framework for governance, implementation, use cases and design principles for APIs, along with a list of over 400 recommended APIs. In December 2018, DBS Bank was already using over 180 APIs on its platform.

The need for standards in the face of accelerating innovation

Platforms rely on ease of connectivity and integration, while data that is accessed via an API needs to be presented uniformly. Here’s when ISO 20022, a widely recognised approach that is now being considered as the standard of the future for financial messaging, comes in.

When APIs are implemented as part of an ecosystem, ISO 20022 adds value by providing the common business processes layer to allow data consistency. It is flexible enough to work with the latest technology and adapt to new technologies such as APIs and distributed ledger technology.

This need for data consistency is driving the move to the next generation of payments, with all cross-border payments and cash transactions on SWIFT moving to be ISO 20022-native starting in November 2021. This is in line with the growing adoption of the standard by domestic market infrastructures across the globe to enable richer and more consistent data from end to end.

By adopting this standard approach, the industry is shifting to a fully digital age platform that powers a data-pervasive future where value is realised through new customer experiences and supported by enhanced reporting and compliances.

The financial services industry needs a platform that is transactional and focuses on the exchange of value. In recent years, this focus is evolving towards an innovative platform, in which value resides in reducing transaction costs, driving utilisation, leveraging optimal partnerships and governance that a cooperative like SWIFT can help forge to minimise negative externalities.

The exchange and shared access of data and information will become second nature as players collaborate to innovate instead of buying or building new solutions. This newly integrated marketplace where every player has defined and specialised roles, will in turn shift the spotlight on to the customer experience, leaving the financial industry – both banks and fintechs – to re-evaluate their strategy for innovation and serving customers.

Michael Moon is SWIFT’s managing director of payments, trade and communication in Asia Pacific



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