VP Innovation at Axway, Co-founder at Vordel

Mark O'Neill

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The Unbundling of Banking - Will banks be "Twilio-ed" ?

This week is API Days Open Banking and Fintech , appropriately taking place in London which is fast establishing itself as the financial technology capital of the world.

I'm privileged to be speaking on the keynote on Weds 23 on the topic of "Innovating at the Speed of Customer Expectation – Laying the Digital Foundation for Financial Services", and then taking part in a panel with Lloyds, Erste Bank, and BBVA about Banking API Strategies. 

One thing I'm sure which will be discussed at the conference is the so-called “unbundling of banking”. Banks are now competing with specialized fintech companies who generally do one thing, and do it well - e.g. rick analysis, or bitcoin blockchain services. Often they have an API into that service and operate as an "API First" company. 

Where has this happened before? The answer is telecoms. In the telecoms world, there is the example of Twilio, a classic "API First" company whose SMS API is very widely used. Just look at apps created at any hackathon, and you'll see how popular the Twilio API is (you'll often also see someone from Twilio there, which shows their investment in the API community). Telecoms operators have thus been disrupted by Twilio, and indeed some have launched their own SMS APIs in response.

Is there a danger that banks will also be "Twilio-ed"? Or is this a opportunity for banks to move, in the words of an architect I spoke to at a US bank recently, from a “Banking Products and Assets focus” to being a “Micro-service aggregator and networked value creator”. Can banks embrace these pure-play fintech services by aggregating and using them in their own "full-stack banking"? We see some brand new banks doing this - e.g. how Fidor includes now Bitcoin support through using the Kraken API.

In TheFinancialBrand.com, Ron Shevlin argues for this, suggesting that the real value for banks is to create a “full stack”, which can include this aggregation of “single-stack” API-First fintech services. He makes the point that aggregating these services into a full-stack is easier than before:
Consumers need a full stack solution. But up until now, the only way to deliver that full stack was with proprietary service offerings and formal relationships between firms that determined who was or wasn’t in the service stack. Revenue-share agreements will make it easier for fintech startups to participate in full stack banks’ solutions, enabling a more open banking environment.
This echoes the Harvard Business Review piece by Bala Iyer and Mohan Subramaniam that "Corporate Alliances Matter Less Thanks to APIs", that APIs make it much more easy for these types of business relationships to happen (and indeed the HBR piece uses Twilio as a key example).

With banks bringing dedicated fintech services into their "full stack", through APIs, it leads to the question: Is the value in the aggregation, or in the service? Are banks at risk of becoming just “dumb pipes” (echoing what Martin Fowler describes in his Microservices vision: the real “smarts” are in the services). Are banks at risk of being Twilio-ed? Will there be specialists (e.g. for payments) and then aggregators can create a “virtual bank” by aggregating these specialists? Is Fidor leading the way?

I look forward to discussing all of these questions, and more, at API Days Banking and Fintech this week.

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Mark O'Neill is VP Innovation at Axway - API and Identity. Previously he was CTO and co-founder at Vordel, which was acquired by Axway. A regular speaker at industry conferences and a contributor to SOA World Magazine and Cloud Computing Journal, Mark holds a degree in mathematics and psychology from Trinity College Dublin and graduate qualifications in neural network programming from Oxford University.