Open API was one of the subjects I was contemplating to write about. I was once asked to comment on this subject in a conference but unfortunately I couldn’t, because there wasn’t enough time. I must confess, since I love every subject featuring information sharing, I was excited to speak about Open API.
I have to tell that I am not a software developer. My relationship with the software world is limited to database programming, basic algorithms etc. courses I partook in the university and I used to format computers every so often back in those days.
But I like the software world. I have a crush on it, that I can say.
If you are wondering what an API is, and what it’s not, you can watch this great video. In summary, APIs are interfaces that allow different software to communicate.
You may not realize, but many of the software we use, are using the APIs of other software to serve us. Take for instance a credit comparison site… Which allows you to view and apply to multiple credit options depending on your needs/demands with the APIs of these credit provider companies. Or think about Facebook’s login service; you can quickly register on sites using this API.
APIs offer incredible time and cost savings when it comes to the end-user experience. Sounds good, doesn’t it?
There are three different main types of APIs: ‘open’, ‘partner’, and ‘private’. The following diagram is vital to the rest of the article.
As expected, the API which sparks the most debates is the ‘open’ (public) API, which can be provided to different companies/persons.
Let’s add another nice diagram here, showing how Open API works and what kind of benefits it provides**.
The open API is a bit complicated… Especially in the finance world…
After the last few years’ hotly-debated PSD2 regulations, which garnered attention from the financial institutions in the EU ‘open API’ and open API based ‘open banking’ discussions started in Turkey.
And there were a few reasons for that:
- PSD2 makes it an obligation for the banks to share some critical APIs (like opening accounts…)
- At some point, it’s possible for the banks in Turkey to be obligated to share APIs.
- The evolution API sharing could cause in the fintech ecosystem looks ambiguous
- And usual security risks that are never obsolete…
In summary, opening APIs (choosing which APIs to open) is an area full of ambiguities for banks.
Saying “let’s open the APIs” is the easiest part of the job. There are dozens of preparations to make. More importantly, the point of view on this subject needs to be changed; it’s time to make a more prominent and catchy emphasis:
Around two billion in the world, and about half of the population in Turkey live a life independent of the banking system. Some of you may remember your credit card debts and imagine how beautiful a life without being in debt to banks must be. But do not allow bad experiences and call center employees, calling around the clock to narrow your point of view.
Transferring of every factor related to money into the digital world, increases our quality of life at the end of the day. But in this transition period, there is a burden so large that the states or banks alone can not afford to handle alone. You are going to affect the daily lives of people, and you will both educate them and make a profit while doing this… That doesn’t sound like a piece of cake to me. FinTech projects that can’t be materialized due to lack of management or lack of resources can turn into effective business models in the hands of small startups (remember PayPal).
It is inevitable that different business models will emerge as the banks’ opening APIs to support the open banking model (I’m not just talking about ATM location APIs ) will affect all the players in the financial world.
But at the end of the day it is also possible for the banks to reach out to the customers they couldn’t before, even if the product/service is not offered directly by the bank (but we should not forget “ego” problems).
While in the correct hands, the concept of ‘open banking’, which is associated with the concept of ‘open API’, stands as a way for banks to expand their customer base while reducing operational costs and increase their competitive power rather than reducing it (Even though not solely on the open banking system, I’d recommend you to check the “Great APIs Are Like Lego Bricks” article to understand the effects of powerful API models).
In short, the open API plays a critical role in the overall digitalization of money.
Of course there are a number of issues that need to be addressed and resolved, ranging from data sharing to different security risks. But which problem hasn’t been tackled when people rigorously tried to solve?
* source: https://www.programmableweb.com/news/private-partner-or-public-which-api-strategy-best-business/2014/02/21