Retail Banking

Retail Banking

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Homemade banks: the future of banking is not what you might think it is

We hear more and more that the future of banking will be even more digital and less branch based; so much so that it’s pretty much given we’ll be doing our banking with apps and wearable devices (like smartwatches).

But what do these apps looks like and who will be making them? While it might be sensible to assume it’ll be the banks that develop these apps, I would argue that it will actually be people like you and I writing the majority of these apps.

Yes you read that correctly. I believe the future of banking is homemade banks, or more specifically, homemade banking applications and services.

Banking will be whatever you want it to be

So, what kind of applications am I talking about? Well that’s up to you, and that’s the whole point. I would like an app that sends me a warning if I’m approaching my monthly budget for coffee. 

Another app, for someone more active on social media, could automatically tweet the name of the restaurant they’ve just eaten in as soon as the bill is paid.

In a more interconnected world, a parent could set up a bonus payment from their account to their child’s when they get their homework submitted on time or for a high score in a test. The possibilities are endless!

I appreciate that some of you may think this is crazy, but the underlying technology to make all this possible has been around for years; in fact you’ve probably made use of or seen it without even knowing it.

The technology I’m referring to is, of course, application programming interfaces (APIs) and more specifically, Web APIs. These are essentially a means by which a website can legitimately communicate with another website to use its data or services, i.e. the developer does not have to hack the site they want to use.
One of the first examples of this technology was Amazon’s Web Services, but the best example is perhaps Google Maps, which proved so successful that within six months of its launch, so many developers had hacked its interfaces that Google had to respond with an official API. By providing APIs, organisations such as Amazon, Facebook, Google, etc. essentially “become platforms for third party innovation”.
How does this tie back to alternative banking and you creating your own apps?
For starters, the UK government is keen for the UK Financial Services industry as a whole to develop and adopt standard APIs that enable further adoption/availability of Open Data, innovation and reduced barriers to entry for new challengers. Secondly, the Open Bank Project, which was referenced in the government’s “Data Sharing and Open Data for Banks” report, “aims to foster a secure, open and innovative ‘ecosystem’ by connecting banks, software developers and account holders”.
Many FinTechs, e.g.Kashflow, Currency Cloud (one of many FinTechs in the payments area) and Fidor, are already providing APIs to give third parties access to specific parts of their systems, e.g. the core accountancy features of Kashflow. And don’t think the use of APIs is restricted to FinTechs and niche banks alone; Barclays, one of the leaders in digital banking, have their own APIs (for Pingit, its mobile payments service) and provide an accelerator programme for start-ups. Ulster Bank recently made use of the Open Bank Project when they invited developers to their “Hack/Make The Bank” event, giving them an opportunity to use the Open Bank Project’s APIs to demonstrate potential applications to improve customer service levels and much more.
If the here and now is about creating and using APIs, where might this lead us in the near future?
If the idea of creating your own banking app still sounds far-fetched, keep in mind that children as young as five are being taught about computing and programming, so as time goes on there will be more people out there with the skills to do it. Furthermore, whilst providers of financial services continue to develop new, more personalised features and technologies, there remain billions of users so the banks are unlikely to ever be able to cater for all of their individual needs.
Where would that leave the banks and building societies?
If this scenario plays out, banks and building societies may find themselves transitioning from providers of financial services to providers of financial platforms, like Amazon, Facebook and Google and in the same way that Apple provides a platform for OS X and iOS developers, which, in the view of the UK government, is a “potential strategy [for banks] to mitigate the threat of being ‘unbundled’”.
In line with the government’s recommendations, the APIs could be restricted to approved developers, and therefore provide some income for the banks without preventing the committed developer from accessing them (in the same way as developing an iOS app has entry costs).
Whilst the banks and UK government are moving towards homemade banks, the FCA have yet to make their thoughts clear on the topic of APIs - but as their core objectives revolve around the customer, surely they wouldn’t be a blocker? Which leaves one question: What kind of bank will you make?

About the author

Sham Sabur
Sham Sabur
Sham is a Senior Consultant in the CIO Advisory Services capability in Capgemini Consulting. Sham has 4.5 years consulting experience across Financial Services, Public and Utilities sectors. Prior to joining Capgemini Sham worked as an Enterprise Architecture Consultant focussing on Business Architecture and Target Operating Models.
2 Comments Leave a comment
A very well written article, which drives home the point for banks really - innovate or perish. It will be interesting to see how well the traditional banks such as Barclays, HSBC, Lloyds etc respond to this challenge. Even more fascinating will be the evolution of consumer needs in light of the enormous possibilities of customisation of financial services for them.
Lovely idea, Sham. And I want one! But I may not even need to do much coding if someone writes an app that enables me to create my own "rules" with ease - something like the Email Rule Wizard in Outlook?

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