Why API's are the key to financial control

Written by Stefano Vaccino · March 20th, 2020

Consumers never owned their financial data. Banks controlled everything from how much money came into an account, to where that money was spent. While technology has already changed some of these processes, like the way we pay or move money around, when it comes to control over our data, the system has remained unchanged for decades. Until now.

Open Banking has disrupted the status quo. A decade on, and thanks to APIs that underpin Open Banking infrastructure, consumers now have more control over their financial data than ever before.

Handing back consumer control

Before Open Banking, consumers were at the mercy of the banks when it came to accessing their own data. There were only two ways to leverage the financial data in personal accounts to get better deals and access fundamental services. The first involved consumers physically printing or downloading a PDF of their bank statement to share with other banks or third party providers (TPPs).

The second saw banks and third parties utilise screen scraping. This meant users had to share their username and password to grant access to their bank account, to, for example, feed into money management tools or to access account information. Both options are long and cumbersome, but option two left consumers at risk of fraud and data breaches unless they remembered to change their passwords.

Reducing account fraud & data breaches

Many organisations have legacy IT systems which utilise screen scraping. This practice easily leaves systems open to data breaches. In fact, the Commonwealth Bank has reported that companies using screen scraping are at least two times more likely to experience account fraud. Not only is this bad for consumers, businesses can also be badly hit by the repercussions.

Thankfully, as of March 14th, a combination of SCA and PSD2 regulations mean that screen scraping has effectively been outlawed – significantly increasing the security of payments. The only secure way of accessing account information is through an API. Now, every individual payment requires a unique authorisation token, which once used, cannot be used again. Even tokens for recurring payments, such as standing orders for mortgage repayments, can be revoked and immediately rendered useless if suspicious activity is detected. This has greatly increased the security for consumers who make payments online.

Breaking down barriers with APIs

While in the UK, Open Banking was given a narrower focus than in the EU – only the nine largest banks were mandated to provide TPPs access to their services and data. However, it did specify a single, pre-defined API (Application Programming Interface) that was set as the standard for integration. While not as immediate as expected, banks did eventually make good progress in opening up these APIs, and it has led to the creation of new services. Moreover, APIs have been instrumental in handing back control of financial data to consumers.

Heading into an Open Finance future

Thanks to these APIs, we are seeing the global growth of Open Banking. Now, consumers can choose when to stay or go, as well as how much information they want to share, with whom and for how long. This is an important move given that as many as 15 million people in the UK could be using the wrong financial services product for them. In fact, around two million people miss out on the best interest rates and four million are denied credit each year.

Further, we’re not only in a world already reaping the benefits of Open Banking. We’re also moving towards a financial services industry powered by Open Finance, where laborious processes such as mortgage applications will be gone. Data that would have historically taken weeks or months to manually compile and send to the bank for review will be collated in minutes. Credit scores to ID verification, property affordability and residential checks will all be securely and seamlessly accessed thanks to open APIs. This will greatly reduce the lag time between application and acceptance or rejection – giving consumers greater control over the whole mortgage process.

In a world powered by Open Banking and Open Finance, consumers now have more control over their financial data than ever before. We can expect to see financial inclusion for the unbanked and a better experience for those with existing products and services.

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