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Warwick Business School academics have published research through The SWIFT Institute on open banking, looking at the possible impact of the adoption of public application programming interfaces (APIs) on the financial services industry.
The promise in application of open APIs is to create efficiencies and improvements for end-customers, as well as harnessing the capability and creativity that third parties can contribute to the realm of financial services.
The paper, The API Economy and Digital Transformation in Financial Services: The case of Open Banking by Markos Zachariadis, Assistant Professor of Information Systems, and Pinar Ozcan, Associate Professor of Strategic Management, aims to provide an insightful resource for financial institutions, Fintech start-ups, technology companies, and regulators alike.
Professor Zachariadis said: "Through this report the SWIFT Institute provided us with the opportunity to do an initial study and gain some perspective on the digital transformation in the European and UK banking sectors as it relates to recent regulatory reforms."
According to the research, the EU's revised Payment Services Directive (PSD2) is anticipated to further open up the European payments market and encourage competition, particularly in the areas of payments.
Likewise the UK Government, keen to create an initiative of data sharing and open data in banking, requested the creation of the Open Banking Working Group (OBWG) in 2015.
The aim of the working group - a collective of banking, open data and Fintech professionals - is to develop a framework for adopting an open API standard across banking and explore how open banking will impact consumers, regulators and industry.
How will open banking change the way we bank?
The objective of this SWIFT Institute working paper is to help develop the thinking around some of the key challenges and opportunities surrounding the use of open APIs.
The research firstly explores relevant theories that are behind the creation of new organisational structures and business models in the digital age in order to help anticipate the impact of adopting open APIs.
Secondly, the paper presents findings around the key challenges and opportunities that open APIs pose for the banking sector in the UK and the EU following the introduction of OBWG and PSD2 regulatory frameworks.
Professor Ozcan added: "We are excited to have launched such a research project at Warwick Business School and look forward to moving beyond the current research insights as we further explore the changing environment, working in collaboration with the banking industry and policymakers."
Peter Ware, Director of the SWIFT Institute said: "Open APIs are a great example of how banks today are actively involved in the innovation and evolution of financial services.
"The emergence of open APIs does mean, however, that the organisation and structure of the financial services model will be much more different than we have traditionally seen.
"This paper outlines how larger institutions can not only tackle inevitable challenges, but play an active role in the reduction of uncertainties in order to gain first-mover advantage."
The research project was originally suggested by NatWest to the SWIFT Institute. Marion King, Director of Payments at NatWest added: "Open banking and the development of API ecosystems are exciting initiatives that will enable customers to benefit from new products and services that will improve the management of their finances.
How will Fintech change the way we bank?
"We know from listening to our customers that they need simple, secure and relevant services. Only by embracing open banking and APIs in conjunction with the strategies explored in this research paper, will providers be able to offer the innovative products and services that customers expect."
Markos Zachariadis teaches Data & Business Intelligence and Global Finance and IT on MSc Managment of Information Systems & Digital Innovation. He also lectures on Business IT and Services on MSc Management and Business Data Analytics on the Undergraduate programme.