How to build your own bank

  • Large financial institutions are opening up their APIs.
  • Exposing the tech underbelly of the finance industry is leading to an increasingly collaborative partnership environment.

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How to build your own bank
With technologies proliferating, many financial institutions see the writing on the wall. Finance has been characterized by the prominence of the institution. Bank brands, worth hundreds of billions of dollars, are powerful and institutions grew to own their value chains. That's changing — some financial institutions are taking the step of moving their brands to the background, exposing their underlying technologies to other firms in the financial system so they can build applications. Much like Amazon has done with Amazon Web Services, turning its e-commerce infrastructure inside-out for technology companies to use, a few banks are doing the same in a move some are calling the platformification of banking. While it may be too early to fully build a bank by mashing up different types of financial services and products, this future isn't too far away. Large financial institutions are opening up their application programming interfaces (APIs) so that fintech startups and other partners can connect directly to their financial guts. This allows firms to specialize, focusing on what their real value is, while piggybacking on top of existing technologies.

Banks with APIs

BBVA The Spanish bank with reach into the U.S. market has been active in adopting new technologies and embracing the fintech firms creating them. In fact, the firm has expressed a goal to become the AWS of banking, comfortable in providing the technology and transactional infrastructure for its competitors and partners. “Shamir Karkal, CFO and cofounder of Simple, has left to become our head of our global, open API platform,” recounted BBVA's Scarlett Sieber, senior vice president, global business development, new digital business, on the Tradestreaming podcast. “In this case, we’re not directly investing in, acquiring or partnering with outside companies but we’re exposing our banking plumbing to the fintech community at large.” BBVA offers an API marketplace for its European and US business units. In the US, the bank's Compass unity provides connectivity for pre-authorized users to access key account data. It also offers an open security hookup that application developers can integrate to have BBVA clients authorize access to BBVA account information in their name. In Europe, the APIs go further, providing data on card purchases, identify verification, and money transfers. Silicon Valley Bank In August 2015, technology industry bank SVB acquired a fintech startup, Standard Treasury. The startup had raised a couple of million dollars and was working on developing APIs for banking and that activity, the technology, and the team that developed it, was brought in-house at SVB. “We view API banking services as a natural progression in how our tech-savvy clients want to work with their banking partners and service providers,” said Bruce Wallace, chief operations officer of Silicon Valley Bank. “API banking services are a key part of our product delivery and service platform strategy. The Standard Treasury team’s vision for the future of API banking services aligned perfectly with our vision, so it’s exciting that we are now joining forces to deliver that vision to the market.” This makes a lot of sense for the bank's technologically-savvy clientele. SVB plans on rolling out its API marketplace in the near future.

APIs for accelerators, partners

Some banks have created APIs for just a select group of partners. They're not necessarily interested in opening them widely for general use. Instead, they're a quick and easy way to get vetted entities on their platforms. Barclays' Developer Network (BDN) is the UK bank's offering for approved firms to build applications using bank data and infrastructure. Barclays uses BDN in conjunction with the 13-week accelerator it runs together with Techstars. Participating startups in 4 locations (London, New York, Cape Town and Tel Aviv) get access to BDN in addition to working with decision makers at the bank and a group of mentors. RBS has taken a similar approach to Barclays. The RBS API was made available as part of the Open Bank Project, an open source API and app store for banks. RBS uses its API as part of hackathons the bank sponsors.

Startups in the banking API business

Startups are helping encourage the use of APIs and they're doing it in different ways. Technology firms like Plaid, which has raised almost $60 million in venture capital, are developing banking APIs to power developers of financial services applications and help them connect with user bank accounts. Developers can integrate to banks using Plaid and get transactional and account data from various financial institution. Solaris Bank out of Germany takes a different tack than Plaid. It has a German banking license and was built from the ground up with the idea that it would power an ecosystem of financial applications. Solaris developed its banking as a service (BaaS) platform to eventually provide a full range of traditional banking transactional services, from a licensed banking entity.

A proving ground for pilots with fintechs

Not all banks are comfortable exposing their data. This reluctance makes it hard for banks to partner with startups, slowing down the innovation cycle. It's a catch-22: banks prioritize partnering with proven technology providers but they themselves can't prove the technology until they've negotiated a partnership and created a dedicated testing environment for a pilot. "Startups need to find a relevant financial institution, convince it that its solution works, and get it to build a dedicated testing environment," said Toby Olshanetsky, co-founder and CEO of fintech startup, prooV. "In practice, this is extremely difficult and as a result holds back the entire global innovation rollout. "The end result is that in many financial firms, there's a huge backlog of projects waiting to get off the ground." prooV is creating a vibrant, compliant testing ecosystem with its pilot-as-a-service, enabling incumbent financial institutions and financial technology providers to quickly launch pilots together. Using Amazon Web Services, the company runs a remote server to simulate a large firm's data that technology firms can plug into and use to approximate actual pilot results. The technology comes with predictive analytics to determine how a new solution would perform in a production environment. It's like a banking and fintech Petri dish. While prooV is active in various sectors, the company is finding a sweet spot in financial services. IsraCard Group, Israel’s leading credit payment conglomerate, faced a conundrum: it wanted to better tap into the local fintech startup environment but was hesitant given the strain of running multiple compliant pilots. prooV ran one proof of concept project and the bank is now ramping up with more. "Within less than 3 months Isracard embraced the prooV platform so enthusiastically that it's now running 32 simultaneous RFPs and is set to achieve in months what could have taken 3 years," Olshanetsky explained. APIs and other new technologies have set off an increasingly collaborative partnership environment that enables banks and upstarts each to do what they do best. Photo credit: SomeDriftwood via Visualhunt / CC BY

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