Open APIs are finally making their mark in the financial services space, shifting the approach to everything from product development to security. Some of the most acutely felt disruptions are in corporate banking, a space that traditionally lags behind consumer financial services in terms of innovation but is nonetheless experiencing progress.
David Watson, chief digital officer of Global Transaction Banking at Deutsche Bank, says open APIs are shaping the bank’s approach to its multinational corporate clients — and, in some ways, are forcing an entire rethinking of how to approach this market segment.
In a recent conversation with PYMNTS’ Karen Webster, Watson explained that in serving MNCs (multinational corporations), financial products used to focus on functionality. But after years of corporate clients comparing and contrasting financial service providers without a clear winner coming out on top, the market eventually shifted to usability.
“It was no longer about functionality, but about how simple and intuitive your online products are,” he said. “It’s a focus on helping clients get in and out as fast as they can.”
But with the rise of FinTechs, a renewed focus on innovation and, more recently, a boom of open APIs disrupting the financial services space, corporate banking has shifted, yet again, toward a new focus.
“The next evolution is that these online solutions, in theory, could be completely defunct in five years and no longer exist,” the executive explained. “Why? Because the mindset around open APIs changes the conversation and the end game.”
That’s because, instead of investing in developing portals and apps, clients’ own systems and third-party services can access these tools, enabling users to gain not only seamless, but nearly invisible access to banks’ services.
“This changes the ballgame completely,” Watson said.
In part, this evolution is brought on by financial service providers like Deutsche Bank working directly with its MNC clients before product development is initiated, the executive continued, instead of developing a tool and working with clients to refine that product moving forward. But the banks have to endure new sets of problems and challenges because of this mindset change.
One of the biggest Watson pointed to is the challenge of having internal teams understand how to connect customer needs with the high-tech concept of APIs.
“What we see in the future is that you don’t want a technical engineer driving product development, but a client-facing product manager may not be tech-savvy enough,” he said. But in order to move forward and develop the right tools for MNC clients, there needs to be a bit of both sides in the conversation.
Education is a major part of this process, but Watson said there are still professionals in the financial services space that are unfamiliar with API technology.
For instance, some professionals fail to develop an API strategy for their clients because their clients haven’t asked for one.
“No one asked for the iPod,” Watson said. Instead, consumers identified the problems they had — skipping CDs, for example — and innovators solved it. “It’s targeting education, and it’s been a hard journey, and I think there is still a long way to go as an industry.”
On a more technical level, ensuring proper functionality of integrated services that are connected via API is also a hurdle, especially in large banks in which internal systems are often patchworked together after years of acquisitions and system changes.
Security, too, is a significant focus as banks like Deutsche begin to give access to their systems to third-party players.
“It’s all very well and good to say you’re going to leave the door to the house open,” Watson said, “but how do you stop yourself from getting robbed?”
FIs have to decide how to control the data that is displayed and available to these third-party players. And while that’s true for any service, in corporate banking, security can be an especially large headache as multiple professionals within an organization each have various levels of access to financial products.
“From a technology angle, this is about how you deal with tokenization, digital identity and control of the data you display,” Watson noted. “It’s about how to install the right ‘bouncer’ at the door without making it too hard to get in. That’s extremely complex.”
But innovation feeds off problems like these. Watson said that while the corporate financial services market often follows a few years behind the B2C space when it comes to innovation, there are certainly ways the B2B sphere can take the initiative to solve its own problems.
The rise in digital identities has helped consumers transact more seamlessly, for example. Watson said he could envision a future in which these digital identities carry over into professional lives to solve for some of the most complex issues of security and access to corporate banking services.
“Some of these identities can be reused as part of the corporate identity,” he said. “There’s no reason why my whole digital identity can’t drive my own access and capabilities within the corporation. I think this will come sooner than people realize.”
Innovation is also driven by a new wave of complex collaboration: a delicate balance of competition and partnerships between major banks and FinTechs. Watson told Webster this has been critical in inspiring new ways to solve problems and embrace open APIs to disrupt the industry.
“With other transaction banks, we have a complex relationship, a collaborator-competitor relationship, and that’s healthy competition,” he said. “And in the last five years, we have built those same relationships with FinTechs. Healthy competition has come into the marketplace, but there are also more collaborative opportunities to solve problems. I think that’s really driven us to be better.”