It’s tempting to see banking as one of the most conservative industries out there. After all, the foundations of modern banking go back nearly six centuries. But banking as we know it is changing fast, undergoing one of the biggest transformations in recent history. The reason for this change? The same one that has transformed the entertainment industry, commerce, education and media in the last few years: The Internet is creating a new paradigm that is changing the way of doing business.
That new paradigm takes the shape of a seemingly counterintuitive concept — the idea of “open banking.” Financial institutions traditionally have been regarded as secretive and extremely protective of their own data and processes, and with good reason. After all, trust is a key element in their operations, and tight security is needed in order to earn that trust.
If, however, there’s a lesson to be learned from the computer industry, it’s that open systems tend to surpass closed, proprietary solutions. The explosion of online services and apps in recent years owes a lot to the proliferation of open standards and APIs. Thanks to them, new ideas can flourish on top of structures already built, developed by outsiders who can bring a fresh point of view to solve old problems.
Banking can benefit from these same dynamics. Applications developed by a bank will always be limited by what a banker can imagine or experience and, more often than not, hindered by the extreme bureaucracy of large organizations. By welcoming external developers and ideas, these institutions can come up with more appealing solutions for their customers in a fraction of the time.
The open bank. There are encouraging examples already taking place, and BBVA bank’s case appears to be one of the most promising.
One of the pillars of BBVA’s digital strategy is identifying and mobilizing “innovation stakeholders” from both within and outside BBVA. Through an open innovation framework, BBVA is building an open ecosystem that includes entrepreneurs, developers, students, customers and employees collaborating to create new value for both the community and BBVA in the new digital paradigm. This relationship model enables BBVA to find inspiration beyond the boundaries of the bank, making possible the utopia of banking outside of the bank and, at the same time, to create value for society at large.
To make this vision a reality, BBVA is embracing an open platform business model to give people, companies and institutions that may not be part of the bank the opportunity to build the services, applications and user experiences they want from the bank. This open platform is conceived as a bridge for collaboration to enable third parties to build new value, either by creating new market solutions leveraging BBVA’s assets (e.g., data) or building new products and services for BBVA or adding new functionality to existing BBVA ones.
To raise awareness of the open platform initiative, BBVA in 2013 launched InnovaChallenge, a contest to find the most interesting ideas and applications from a massive data set that represented a year of credit card activity from the cities of Madrid and Barcelona, Spain. For obvious reasons, the data was completely unlinked from any personal information.
The challenge was a resounding success and prompted BBVA Innovation Center to launch a second contest this year, InnovaChallenge MX, with data comprising cards processed at BBVA Bancomer point-of-sale terminals in Mexico City, Monterrey and Guadalajara, Mexico, from Nov. 1, 2013, to April 30, 2014. For the InnovaChallenge MX contest, BBVA developed an API with four REST services that provides access to a data set with customer data and can be accessed through BBVA's developer portal.
“The results of the projects, in terms of quality and usability, showed the value of exposing BBVA data and tapping the collective intelligence,” says Gustavo Vinacua, BBVA Innovation Center and open innovation director. “Opening data is an effective strategy to engage with the developer community.”
In order to promote the creation of an ecosystem of developers and encourage participation in the contests, BBVA organized a comprehensive program, including workshops to learn to work with APIs and open data. BBVA curates an ongoing agenda of online and offline activities and content for digital entrepreneurs and developers. You can stay up to date with this content, which includes webinars on data visualization, geospatial SQL, bookstore applications, repositories and interviews with past winners, at bbvaopen4u.com.
Diversity comes to the app store. Other institutions have also leveraged the use of APIs to bring more variety to the ecosystem of banking apps. In January 2012, Credit Agricole launched the CAStore, an online marketplace that matches ideas for new banking applications with developers, giving them the tools they need to create apps. More than 50 teams of developers have since contributed to the store.
In Germany, the Open Bank Project is seeking to push this initiative further by creating a common open source API standard that can be used by different institutions. The initiative has been adopted by Postbank and Berliner Sparkasse, among others.
The hackathon approach, however, seems to be the most common strategy to energize the developer community and attract new talent. At the end of October, Bank Leumi, one of the most prominent Israeli financial institutions, hosted a 36-hour event in Tel Aviv with hundreds of participants in search of the most innovative banking app.
First National Bank of Omaha and Citi have done similar initiatives in the U.S. with a great response from the developer community. “The hackathon is part of a global trend of integrating external parties in the technological development process. In this way we can expose customers to a broader range of services in a shorter time frame and with lower development costs,” says Danny Yerushalmi, head of Leumi Technologies.
So far, concerns over security have been the primary barrier to wider adoption of open APIs in banking, but these recent trials and experiences prove that opening the information flow from and to the bank not only is a secure strategy, it is also a winning one.
These are all examples that illustrate how the call for “open banking” seems to be getting stronger among established financial institutions. Forward-looking banks such as BBVA are coming around to the inevitability that APIs are their future, not a threat to their businesses.