Inside the Bank of APIs: NatWest and the Evolution of Open Banking
11:50 05 Sep 2023 How can banks, fintechs, regulators and all players in the UK’s Open Banking ecosystem create the right commercial incentives for financial institutions to deliver Premium APIs?
In order to move to its next stage of growth and development, the UK’s Open Banking ecosystem must collectively answer one fundamentally important question. How can we incentivise banks to create the APIs needed to power innovative services which will catalyse wider adoption?
NatWest has been working to solve this puzzle for several years. Since Open Banking launched on January 18, 2018, banks have made a suite of mandatory APIs available to TPPs. As time passed and the opportunity became clearer, fintechs started to see that if more APIs were available, they could build more services to deliver further benefits to customers.
Our first reaction to observing this opportunity was to consider if and how we could persuade the regulator to push banks to make more APIs available. Our thinking has shifted over the past 12 months after we realised the best way to drive the growth of this ecosystem is for banks to take the lead on building models which allow them to deliver new APIs on a commercial basis.
We reached that conclusion because, frankly, there might never be any more regulation. The regulator has reached the end of its mandate. A new mandate is required to drive regulation and we don’t yet know when – or if – this is coming.
Waiting for regulators to deliver more regulation is not the best way forward. We think the industry itself can create commercial models without a mandate. I hope we’ll be given the opportunity.
JROC and Commercial Incentives
Earlier this year, the Joint Regulatory Oversight Committee (JROC) set out proposals and a roadmap for the delivery of Premium APIs. NatWest is 100% supportive of the JROC process, which is following a path that is similar to the strategy we have adopted for the past three years.
After Open Banking launched in the UK, we invited fintechs to tell us what they needed to deliver new services. If we were able to satisfy their requests on commercial terms that worked for parties on both sides of the exchange, we made it clear we would consider implementing the APIs they were looking for.
We’ve always had an open door policy to TPPs and invited feedback, suggestions, and requests, to which we listened and reacted. We weren’t developing commercial APIs, putting them out there and hoping they would be snapped up. We had TPPs tell us that if we built the APIs, they would use them.
As the only bank pursuing this path, we have achieved between 15% and 20% market share, which is very strong. But that still leaves up to 80% of customers unable to access APIs which drive innovative services.
We cannot move the market forward unilaterally in any meaningful way. Which is why it’s great to see the industry coalescing around the idea that we can move forward together to address this challenge.
The JROC report matches our own thinking around where we should go next and we’re looking forward to playing an active role in the process. We have seats on the working groups dedicated to variable recurring payments (VRP) and the future Open Banking entity.
We’ve already spent a long time answering a lot of the questions that are on the agenda for the VRP Working Group, such as liability and how to protect customers in the absence of an established payment scheme. Now we want to share those learnings.
NatWest’s Focus On Collaboration
Our data-sharing APIs illustrate the strategy we’ve followed when building new APIs. The UK has been trying to figure out digital identity for many years. We decided not to wait for digital ID to arrive – which might never happen – and instead just launch our product out into the market.
Our products let customers choose to share their data in a transparent, consent-driven manner, enabling them to be onboarded or pass due diligence much more quickly. This could involve pre-filling forms at checkout or verifying customers’ age or address where necessary. We’ve got a number of products on the market now, interesting pilots taking place and contracts with a small number of merchants, who are either using those APIs now or planning to do so in the near future.
On our website, customers can see everyone they have shared data with and when they shared it. It’s a permanent record. Is this digital identity? Perhaps not. We think it’s best described as “digital identity lite”. But if there is going to be no single UK digital identity scheme, then it serves an important purpose. It also shows that banks must take the initiative if we are to deliver the APIs which allows us to push forward into the next stage of Open Banking.
Will There Be a TfL Moment For Open Banking?
The TfL moment happened because a very large merchant – Transport For London – adopted contactless card payments. If another equally large merchant did the same with VRP or bank-led customer identity, millions of customers would be exposed to these new solutions and adoption would skyrocket.
We’ve had some interesting conversations with very large organisations. We know there are large merchants and tech companies that are looking at deploying Open Banking. If one of these giants delivered a good experience along with great journeys, it is likely that we will see a spike in adoption similar to the famous TfL moment. I’m optimistic that this could take place in the near future and possibly within 12 months.
There are only a few companies large enough to enact a change on this scale. As we wait for them to move into the market, it’s important to continue working to get the incentives right for banks. When more players enter the market, we can create an innovation feedback loop in which financial institutions draw influence from each other’s products, improve upon their work and drive ongoing innovation. It’s time for the industry to focus on the commercialisation of APIs to drive ongoing innovation and ecosystem growth – with or without new regulation.
To read more about the Bank of APIs, follow this link to visit the NatWest website.
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