Page 33 - GS210402

View

During the 19th century, Robber Barons such as J.P.
Morgan controlled the railheads and rights-of-way-of
the industrial economy. Railroads often ran on different
gauge tracks, an intentional move to force shippers to pay
more to send their merchandise cross-country, because
the goods had to be unloaded and reloaded many times
along the way. Lack of interoperability on railroad tracks
hurt industries like farming and manufacturing. Today’s
closed banking system—its lack of interoperability at the
core— similarly cements core processors into a position of
power.
Dear innovators: Due to the rigidity of the U.S. financial system and lack of

recognition for alternative approaches, few challenger and
Build your own bank digital-only banks have truly broken the mold with their
offerings. Most application developers remain tethered to

they must color between the lines of that system. From a
By Michael Boukadakis the core processor of a financial institution, which means
ENACOMM technology perspective, the fintech can only do what the
bank or credit union can do. Open banking, on the other
cross the pond, open banking is the name of hand, allows for boundless creativity and innovation.
the game. Starting in early 2018, banks oper- Shifting the status quo
ating in the European Union were required
A to share their customer data with third-party How can U.S. innovators shake up the financial services
firms (with customer consent) under the revised Payment industry today, without partnering directly with a bank
Services Directive (PSD2), which opened the door to (which locks you into a core processor) or waiting for
greater collaboration between financial institutions and truly open banking and open APIs? Build your own
fintechs. bank. Utilize a digital gateway that can talk to any core,
choose your preferred core processor, rent the charter of
Regulators in the United States have yet to follow suit, a sponsor financial institution, then seek and deploy the
but that doesn’t mean American innovators aren’t finding best technology available—for every process from account
ways to partner with financial institutions. To truly opening to fraud prevention.
unleash a technological revolution, however, the entire
industry must go beyond open banking (in the sense of With open APIs, there’s no need for a community financial
data sharing) and embrace open application programming institution, prepaid card provider or challenger bank to
interfaces (APIs). invest millions of dollars to develop every technology
behind its customer experience and back-end system.
Open APIs are like test kitchens that give creative chefs Think of a homebuilder:rather than manufacturing their
access to all the appliances and utensils they need to whip own nails, bricks and pipes, they source all the materials
up a culinary masterpiece. In the fintech world, open they need.
APIs provide developers with programmatic access to a
software application or web service upon which they can Financial industry innovators who truly want to challenge
build, without obstructions. the status quo in banking can do the same, choosing their
desired capabilities, then deciding how to put all of the
Chafing at limitations best-in-breed components together. They can choose
Today, financial institutions often have a limited set the right player for every position on their team. The
of products from which they can choose—ones that are result? Greater flexibility, less lift. Fewer employees, more
compatible with their core processor’s API. These “core revenue.
platform/provider constraints” were ranked as the number
one threat to the growth prospects of respondents’ banks The entire industry should support truly open banking,
in a recent American Bankers Association research study rather than forcing fintechs to create individual data
found at https://bit.ly/2ORzlck. sharing and open API agreements with every partner. But
until this dream becomes a reality, there’s a workaround
Many core processors charge a toll to access their APIs, waiting to be put to use.
with some API fees reaching upward of $100,000. Erecting
a hundred-thousand-dollar hurdle is meant to protect Michael Boukadakis is the founder and chief executive officer of
market share by keeping users locked into specific ENACOMM, a fintech enablement company (www.enacomm.net). To
technology platforms and products. Arguably, it’s a smart get in touch with him, email laurend@enacomm.net.
business strategy, but it stifles competition and holds back
invention.
33