When Apple launched its App Store in 2008, it transformed how software was created and distributed. This business-model innovation gave every smartphone user the ability to create their own bespoke suite of programs to serve their every whim. People no longer had to settle for the programs that came on their devices — and I’m old enough to remember when the cool Nokia flip phone only came with one game: Snake. Now Apple and Android users can add games, entertainment and any number of productivity tools from a bazaar filled with tens of thousands of choices. Banking is now on the cusp of experiencing a similar revolution as a growing number of institutions embrace the idea of open banking — where banks partner with third parties to offer customers a wider (and more easily customized) set of services.
A good example is Fidor Bank’s new FinanceBay, an open-banking platform where customers can compare and select among banking products in an app store. Fidor wants to attract the best services from fintechs, giving those firms access to a new customer base, while giving the customer an app-store-like experience that allows them to select products ranging from person-to-person payment apps to insurance products.
Fidor is not alone in following this path. Large banks around the world plan to make major investments in open banking by 2020, according to an Accenture survey. Those investments will help take what has traditionally been a largely closed ecosystem and create opportunities for bilateral trade where banks can offer third-party products to their customers, but also make their own products and services available on other third-party platforms. This shift is possible because banks are opening their application programming interfaces, also known as APIs, to allow tech companies to securely integrate their services with those of a bank and vice versa. With easy access to third-party products on a plug-and-play basis, banks no longer need to develop all of their own products, from checking accounts to loans to loyalty programs. Instead, banks can offer a mix of homegrown and third-party products that integrate into a seamless experience for the customer.
