A guest post by Alexander Vityaz, the CEO of Corezoid, a cloud process engine.
There are currently 30,000 banks operating in the world today, and every one of them offers financial technology solutions in order to compete. An industry with 30,000 banks is an extremely fragmented one, ripe and perhaps desperate for innovation – and FinTech is a sector always on the lookout for what the next big disruptor will be.
The popular candidates are usually tech startups introducing bold new paradigms with transformative potential, solutions ready to shake up the industry. However, I contend that it will actually be well-established players like Visa and MasterCard that are responsible for the next big disruption in FinTech, and that the reason for this disruption will be open APIs (the number of which grow by the day). Here’s why.
The banking industry may be highly fragmented, but the payment technology represented by the cards we all carry is not. Each of the 30,000 banks issue the same Visa and MasterCard plastic worldwide. As it is now, banks control their relationships with their customers, while providing internally developed IT solutions in addition to a growing number of solutions from Visa and MasterCard. It can be said that Visa and MasterCard have successfully defragmented the e-commerce space, now controlling the checkout and wallet solutions – Visa Checkout, MasterCard’s MasterPass – that merchants have flocked to as standards in the industry. By way of open APIs, both Visa and MasterCard are setting the stage to vastly expand their roles as FinTech providers.
Both companies have demonstrated a solid commitment to this strategy. Visa has now made hundreds of APIs openly available via its developer.visa.com portal, while MasterCard announced its Open API Declaration last year. These open APIs make key financial technology services widely available for use in new solutions. Visa, for example, has made 150 different services available through its open APIs, which include the technology to create web interfaces, operate physical card scanners, receive real-time foreign exchange rates straight from Visa, and many other tools for developers to apply their creativity to while creating exciting new FinTech products. What Visa and MasterCard envision is a future landscape where a rush of clever startups uses the companies’ open APIs to create innovative new ways for businesses of all kinds to meet their financial technology needs. And they do so with tools that are compatible with Visa and MasterCard’s own solutions and that are in some ways dependent on their ecosystems, therefore leading to new business as a dividend of their bet on open APIs.
It should be said that while APIs hold vast potential as the basis for innovative new solutions in the financial industry, they also have a dark side of technical challenges that leave substantial room for improvement. One issue is that a business using an API must create and support duplicate hard code for each software language its supports, requiring the management of multiple code versions which each accomplish the same functionality, and would be wholly redundant if the nature of APIs didn’t make them necessary. Another major issue that businesses must overcome is that different APIs operate at different speeds. For example, API “A” might be capable of handling 80 requests each second, while API “B” can handle only 30 per second. This issue forces developers to implement buffers and hard code logical binding around the APIs they make use of, in order to get those APIs to synchronize and avoid issues between components in communications services.
In many ways, however, these issues actually pave a path for what will be the next step in the evolution of this technology: the transition from APIs to API-based processes. This is a future anticipated by analysts at Gartner, who foresee the API offerings of today becoming ready-made, plug-and-play processes tomorrow, sparing businesses from the hardcoding and laborious developer work APIs currently require. This economy of algorithms is a likely ultimate destination given where the turn toward open APIs is leading this technology – a marketplace where financial and other businesses can easily discover and implement needed API-based solutions, free of difficulty.
The result of the rise of open APIs, and the processes that follow, could easily have a disruptive and transformative effect on the fragmented retail banking market. As ever more seamlessly-integrated solutions based on open APIs emerge, look for banks to turn away from internally developing and supporting their own financial interfaces and tools, and to instead adopt the more cost effective and innovative products that will arrive to conquer the market. Peering further into a future where banks are freed of their IT obligations and open APIs have the power to integrate powerful financial tools with whatever solutions customers find most convenient, it’s not hard to imagine these forces defragmenting retail banking, and replacing the way individuals and businesses conduct banking activities and financial transactions with more powerful and convenient methods. With open APIs from Visa and MasterCard under the hood, the stage is set for building a global marketplace of processes and algorithms that will transform the financial industry.