As Andy Williams sang, it’s the most wonderful time of the year – and also the time when analysts, commentators and business leaders throw their hats into the ring with predictions for what the next year will bring, writes Hans Tesselaar.
And while it is exciting to hear new buzzwords, fresh terminology, and wild forecasts for unexpected partnerships and industry change, I think 2018 will bring a meaningful evolution of many of the trends we have already seen come to the fore this year.
APIs and micro-services
One significant trend we will see will be the continued development and maturity of APIs, and the associated move to micro-services. We saw the first APIs become available this year, though these have largely been simple versions – e.g. APIs that can provide an address. As we move into 2018, we expect to see organisations orchestrate much more complex APIs, such as those that allow customers to initiate a loan.
The long-awaited (and now fast approaching) PSD2 legislation is closely linked to this discussion – in mid-2018, the first open APIs will become available. The industry often focused on how open APIs will increase competition for traditional banks, as fintech enterprises look to create innovative new services on top of the banks’ data.
Understandably, this notion of opening up and sharing data is worrying for a number of banks, who fear that they risk being surpassed by their flexible, tech-savvy challengers. However, there is a major innovation opportunity here for traditional banks, bringing the chance to grow new revenue streams, capture customer ownership and progress toward an extended ecosystem.
To realise these benefits, banks need to leverage API integration and their existing customer relationships to develop a customer value ecosystem centered on their own banking portals. On top of enabling collaboration with FinTech or broader tech organisations, developing and opening APIs will finally allow banks to embrace cloud-based solutions that will enable them to operate a leaner tech model.
If the industry can understand and migrate to micro-services, we can expect to see a bank that no longer relies on core systems within two to five years. This way of operating will completely change the way that banks work and how software providers will have to design and package their solutions. A global standard and model for API development will be crucial in taking this innovation forward and allowing banks to realise their full potential.
Slow movement for Distributed Ledger Technologies
I anticipate that we will see a slow adoption rate of Distributed Ledger Technologies (DLT). The technologies that are in place for payments are already robust so I don’t see that there is an immediate reason for drastic change. While we may see some closed group proof of concepts, I don’t expect massive leaps forward in this sector.
Legislation will continue to top the agenda
The finance industry has always faced the challenge of complying with ever changing regulations. PSD2 and GDPR are currently top of the agenda, and the pressure on IT professionals to be compliant in time is growing with every passing day.
We can expect legislation to remain a hot topic into next year, particularly given the conflict between PSD2 and GDPR. With that in mind, I think we will see a slow start for PSD2, despite pressure from the regulators. The reality is that being compliant with both sets of regulation will be a major challenge.
Customers, then business and technology
I hope that the real shift that we see in 2018 will be one of mind-set, in terms of how banks think about innovation. In short, they should be thinking about customers first, then business, then technology. All updates and change must come from market demand.
APIs sit at the heart of this new ‘sharing’ culture, and are the key to bank collaboration with FinTech players. By embracing an open platform, banks can simplify the process of adding innovative technology services by piecing together building blocks of flexible technology – outsourced from FinTech players, or even other banks who specialise in a specific service.
However, before banks even think of opening up their systems to newcomers, they will need to
untangle their archaic infrastructure and streamline their core banking processes. Each API should then be designed to sync up with the core architecture.
The best move for the whole industry, is for banks and tech experts to work together on this. While PSD2 is an EU Directive, this collaboration should be embraced on a global level.
Banks from all round the globe would benefit from defining a globally standardised core banking structure, with standardised APIs to sit on top. Only then can we simplify and enable the collaboration across the global tech and banking landscape that will enable the emergence of new business models – now that’s an exciting prediction.
Hans Tesselaar is Executive Director of BIAN