Bank APIs are the foundation of European open banking.
Since the EU’s second payment services directive (PSD2) came into force, regional banks have created application programming interfaces (APIs) that enable third parties to access account data and initiate payments.
But while open banking highlighted numerous consumer benefits, the business case for banks wasn’t immediately clear. In recent years, however, financial institutions (FIs) have found ways to monetize the system by going above and beyond the minimum data-sharing requirements of PSD2.
These bank monetization models include the development of premium APIs that deliver a more enhanced functionality than the free-to-access ‘core’ APIs mandated by PSD2.
A report published in November by Mobey Forum, a non-profit coalition of banks and FinTechs whose members include ING, Caixabank and HSBC, outlines the nascent field of open banking monetization and suggests some promising avenues in the future.
Among its observations, the report notes that “experts believe [business-to-business] will be the front runner of monetization because of the direct return on investment from open banking spend.”
In other words, while consumers are unlikely to transition to a paid-for service when there are a number of free open banking solutions available, businesses that could leverage enhanced account data to develop their own products and services would be more likely to pay for it.
Of particular interest, the report finds that open banking solutions tailored to small- to medium-sized businesses (SMBs) are one of the early success stories of premium APIs.
And as these solutions lessen the administration burden by integrating open banking data into accountancy systems, for example, SMBs have proven willing to pay.
Nordics Champion Premium APIs
Nordic banks have developed some of the industry’s most innovative premium APIs.
As well as allowing third parties to request basic account data and initiate transactions, Finland’s OP bank also has APIs to filter transactions, request information about specific payments and issue refunds automatically.
Another bank in the region, Nordea, which operates across Finland, Denmark, Norway and Sweden, is considered to have one of the most extensive API suites on the market.
In addition to its five compliance APIs, Nordea offers 10 paid-for solutions that cover foreign exchange trading, corporate payouts, refunds and mass payments, among other services.
Going forward, banks may be best served by working together on their monetization strategies.
As the Moby report explains, “a highly desired data API which only works for one financial institution’s 5% market share is not very useful for an API buyer. Some premium APIs will need a collaboration between financial institutions to enable full (or nearly full) coverage of a given geographic market.”
While some efforts have strengthened that collaboration, there is still a long way to go.
Most of the gains that have been made in extending coverage across the region are thanks to specialist non-bank FinTechs that connect to European banks and enable their clients to make API calls through a unified interface.
In the next stage of open banking, however, the successor the PSD2 is likely to mandate API standards, enabling easier interbank collaboration.
Open Banking and Instant Payments
While open banking has the potential to enable instant account-to-account (A2A) payments across Europe, that prospect is limited by the fact that not all banks offer real-time services. Of those that do, some add an additional fee, meaning many customers default to slower payment rails to save costs.
That said, barriers to instant payments may soon be a thing of the past, in the Eurozone at least.
In October, the European Commission (EC) published a draft proposal that will mandate banks to offer instant euro payments while forbidding them from charging extra for the service.
As Tom Greenwood, CEO at open banking firm Volt told PYMNTS, such an amendment to the Single Euro Payment Area (SEPA) regulation will have a “tremendous impact on open banking payments adoption, unlocking new use cases for account-to-account payments, including in physical in-store retail settings.”
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