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Tuesday 25 June 2019


APIs ripe for disruption, say experts

Written by Hannah McGrath

Payment service sharing among banks and FinTechs is a sector “ripe for disruption”, Starling Bank’s chief platform officer has said, as a panel of payments experts made their predictions for the year ahead.

Speaking at the PayExpo in London yesterday, Megan Caywood noted that application programming interfaces (APIs) which allow banks and financial institutions to securely share data, are “fundamentally changing” the way that software is created and brought to market, with quick transmission of data allowing banks to access payments at lower cost.

“We have a whole payment services division and that’s where we’re enabling other banks, other FinTechs to access Faster Payments through our APIs, and that area is what I think is ripe for disruption, and that’s where we’re seeing a lot of activity,” she stated.

However, Robert Courtneidge, chief executive of international payments company Moorwand, said Open Banking and PSD2 legislation, which regulates sharing of consumer financial data, would struggle to gather momentum in the coming year, describing it instead as a “slow burn”.

David Parker, chief executive of payment consultancy firm Polymath, said consumers would continue to grapple with the shift from advice from banks not to share data, passwords and financial information to the conflicting mode of giving permission for banks to share it with third parties.

Caywood disagreed, saying that Starling had seen above the predicted uptake of Open Banking modalities since the bank launched API integration in 2017.

“What we find is yes, if you ask someone for their username and password, scrape all their bank data, they’re hesitant because that’s a terrible idea,” she said.

“But, if you do a proper API integration, they have a flow they’re used to from other products and services they’ve used, like logging on with Facebook where you’re securely redirected back to the app and asked by your bank do you approve Yolt to access your Starling transaction data – people are quite confident in using that, they understand what it means and there’s actually a lot of uptake.”

On GDPR legislation, the panel was split on whether the Information Commissioners’ Office (ICO) would be right to levy substantial fines on companies which experience a data breach, leaving customers' details exposed.

Parker predicted that regulators would decide to impose the first major fine within the course of the next 12 months, but Courtneidge warned of the risk of fines having the potential to wipe out businesses and said he hoped regulators would act “sensitively”.

He said: “I hope the regulators don’t see it as a big stick. I think we’re going to see a lot more data breaches in the next 12 months, but I think putting big fines in and causing businesses to close down that are otherwise stable is not good for society, I don’t think it’s good for consumers.”

Caywood agreed that fines could pose financial challenges for smaller firms, adding: “From what I’ve seen, the compliance isn’t perfect across the industry, I was chatting with a company just a couple of weeks ago and I actually asked them ‘are you GDPR compliant?’, he’s like ‘that’s what we tell customers’ and I thought ‘I don’t know what that means, but that’s not good’, so I wouldn’t be surprised if that happened although I’m hoping it does not.”

She predicted that 2019 would be a defining year for challenger banks, explaining: “I think before we see more consolidation we’ll actually see more coming to market. I think what we’ve seen is we have a number of banks who build a completely different business model from scratch and that’s motivated incumbent institutions to react as well – we’ve seen a number of them starting to build their own challenger banks, digital offerings.”

The experts agreed that 2019 would see increased uptake of digital payment methods amongst consumers, including digital wallets such as Apple Pay.

However, Parker warned that on a global basis, the value of digital payments was still “peanuts” when compared to other methods. “I would push back on that and say the phoenix-like rise of QR codes in developing markets will significantly continue to increase.

“If anything we’re seeing an increasing divergence between developed markets where cards in mass distribution beforehand and therefore you have contactless through card and now fewer on the phones and markets where you had low card penetration and actually they’re jumping straight to a mobile QR solution.”

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