This article by Nabeel Siddiqui in American Banker argues that “Slow API adoption is dragging U.S. banking down.” This is a terribly simplistic statement; but not really surprising since Nabeel’s company is largely predicated on banks implementing its APIs. Here is Nabeel’s argument for moving quickly to adopt APIs:
“The United States has long had a reputation as a banking and financial juggernaut and leader of innovation. But unless American banks embrace open banking, they will lose the title.
While there is still no larger market, the U.S. has already begun to fall behind other countries when it comes to consumer finance. For example, even though payment app services like Venmo are catching on fast in the U.S., widespread adoption of instant, real-time payments is still trailing that of other countries, where many citizens may have never seen a paper check before. That is something still foreign to many Americans.
American banks’ slow adoption of application programming interfaces is one reason the world’s largest economy has stumbled in advancing digital banking. Other countries, like the U.K., India and Australia have been actively pushing open banking systems for some time. In the U.K., Britain’s Open Data Institute estimates that each British bank has spent around £1 million ($1.7 million) to create open APIs, for instance. U.S. banking, meanwhile, does not inherently support API integration. Integrating parties into the bank technology infrastructure is a slower process that ultimately hampers progress.”
In reality building API access into existing systems is a relatively simple technical task, but only if the use case, performance, and security issues are all well understood; which is rarely the case.
Building a business case for deploying an API is difficult. Equally difficult is identifying the security and business risks associated with deploying APIs. It must be recognized that regulators in the U.S. hold Banks accountable for all of its partner’s activities and actions. As such, enabling new partners is a complex process and must address OCC regulatory recommendations. This makes partnerships with startups, such as Mr. Siddiqui’s, particularly difficult.
Overview by Tim Sloane, VP, Payments Innovation Advisory Service at Mercator Advisory Group