SWIFT moves to consolidate role as gatekeeper of API standards

By Nash Riggins

The EU’s sweeping Payments Services Directive and the meteoric rise of open banking have created enormous potential for enterprising fintechs hoping to democratise markets with the help of open APIs.

Yet as incumbents continue to rollout publicly accessible APIs as part of their new regulatory obligations under PSD2, the incompatibility of those interfaces has become a major sticking point for developers operating across multiple regulatory jurisdictions. Global payments giant SWIFT has been working rapidly over recent months to offer developers a series of open API standards that can be applied across the globe – and this month, the organisation has taken another huge step to consolidate its desired role as the sector’s new standards gatekeeper.

On September 5, the body published its latest API standard for the pre-authorisation of funds, which is designed to help banks earmark purchase funds in advance so that future payment can always be guaranteed. This is the second set of open API standards SWIFT has published so far this year, with the body rolling out its ‘Pay Later’ standard in January to support customer use of traditional bank loan financing for the purchase of online goods.

In turn, SWIFT has effectively launched its own open API standards library – which is something many market participants have no doubt been craving since PSD2 came into effect.

While each institution’s APIs are inevitably going to be different, overly distinctive architecture forces developers to bend over backwards in order to adapt bespoke data structures, security considerations and workflows for each individual interface so they can be applied to different products and platforms.

These alternating structures cost bootstrapped fintechs a lot of time and money, while simultaneously slowing the rate at which banks are able to leverage those third-party platforms and rollout new products and services with minimal investment. Bearing that in mind, it only makes sense for industry bodies to apply guidelines capable of both simplifying development for fintechs and also enabling regulators to better monitor use from a compliance point-of-view – but up until the introduction of SWIFT’s new standards in 2019, regulatory guidance has been unhelpfully localised.

The UK’s Competition and Markets Authority (CMA) has provided firms with the most comprehensive set of standards to date. Its Open Banking Implementation Entity launched the Open Banking Standard in January 2018, which covers everything from security profiles and customer service guidelines to directory specifications and dynamic client registration.

Domestic uptake has been pretty good, too. According to the CMA, the Open Banking Standard has already been implemented across 90 percent of the UK payments account market – and attempts to reel in standards goes much further afield than the EU.

The Monetary Authority of Singapore published its own API playbook years ago, the Hong Kong Monetary Authority issued an Open API Framework in July 2018 and bodies like Open Banking Nigeria and the Australian Competition and Consumer Commission are currently working to implement their own domestic standards for market participants operating in areas where PSD2 isn’t actually a legislative obligation.

We can already see that each country is developing their own formats and that sometimes individual banks are developing their own formats,” Hiroshi Kawagoe, General Manager of Transaction Business Planning Department at Sumitomo Mitsui Banking Corporation said in a statement following the introduction of SWIFT’s second standards release.

“This kind of fragmentation may not be ideal as the banking industry progressively opens up more advanced services through API.”

That’s why Swedbank’s Kirstine Nilsson argues the introduction of various standards is actually a step in the wrong direction, as it will ultimately lead to design disparities that perpetuate cross-border frictions – and she reckons SWIFT is the natural leader in order to help banks mitigate those frictions.

“The banking industry must come together for the benefit of the digital economy to standardise retail and wholesale banking APIs,” she said.

“Developers these days don’t want to do host connections or SFTP connections – APIs are the way forward and SWIFT is the perfect body to deliver global consistency.”

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