This week is all about the impact of Open APIs on Finance, what we call the Programmable Bank. This is part of a series where we look at the impact of different disruptive technologies on Finance. In the past we have covered Blockchain, Artificial Intelligence, Regtech, Chatbots, XBRL and Wearables.
API stands for Application Programming Interface. We have had APIs since the dawn of the computer business. They were as exciting as COBOL and you only needed to know about them if you were a developer or worked very closely with developers.
So when Daily Fintech Advisers started to talk to senior executives in Banks, I talked about Open APIs and a colleague told me that I needed to explain what they are (as we were not meeting with developers). So, at risk of boring the Tech oriented among our subscribers, here is the briefing for the Fin in our community.
Open API is just the entry ticket to the party
Open is one of those words that have been so abused by marketing that they have lost all meaning.
My definition of Open API is very simple. It must be listed in the Programmable Web where you can search for all Open APIs by multiple categories.
There are some really bad Open APIs and there are some really good Open APIs.
Putting your API on the Programmable Web is only the starting point. It will get you into the party but it won’t make you a good dancer. Over 16,000 are listed. So having an Open API will soon be like bragging that you have a website; it is simply one more thing you need to do to be in business. Then you will be judged based on:
- are the services delivered via the Open API useful and competitive? An API simply exposes a service. Is that service useful? Are the terms reasonable?
- is the API easy to code to and is the documentation good? If you give this to a developer in a Hackathon for a Red Bull fueled few days, will you get a Prototype? Will they want you to make a decision to use the service? In short, do you get the tech vote?
16,000 is a big number but we are still in early days.
There is nothing technically exciting about an Open API. It is simply an API that you can try out without first getting a deal done through Biz Dev. What is exciting is how it changes the game of software development when it reaches scale. As Clay Shirkey puts it in Here Comes Everybody, technology becomes socially and economically interesting when it becomes technically boring (think of mobile phones, no longer technically exciting but when 50% of the 7 billion people on the planet use one, then everything changes).
It is the increasing ubiquity of Open APIs that makes them interesting.
Having said that, Finance is lagging in the use of Open APIs. Telecoms is way ahead. So FinServe and FinTech can still gain competitive advantage today by using Open APIs (either by becoming a platform for customer facing innovation or by rapidly creating customer facing innovation using those platforms). Which brings us to the sign saying North and South.
Northbound and Southbound API’s
A Northbound API exposes the service to applications that are closer to the end user. Think of a Stack. Further down the Stack you face north to the apps on your platform. Conversely, a Southbound API allows end user facing apps to focus on the UX by taking advantage of all the services that the platform provides.
Picture northbound flow going upward and southbound going downward.
There are intermediary services that have both northbound and southbound interfaces. They add value by making it easier for both parties to connect.
API is a dumb pipe that needs semantics
Picture two people on a phone, one talking Mandarin, the other talking Greek. The pipe connects them, but it is still not a useful conversation. The semantics – how two systems actually communicate – matter. Those semantics could be defined in a data standard (think of XBRL) or could be defined by the Northbound API – while that maybe proprietary, the end user facing app may live with that to get critical metrics related to time to market, price etc.
Write Much Less Code
For a long time, developers tried making themselves redundant by creating a 4GL (4th Generation Language), then a 5GL . These new programming languages never really caught on because they were too constricting for developers and too complex for end users. Mass adoption of APIs promises a different future.
People will still write code, but they will write much less code.
Experienced Developers know that all code takes longer, is more expensive and buggier than planned. Always. They also know that the costs really go up the day the code is delivered – that is when Maintenance starts and the real costs pile up.
The only answer to that problem is simply to write much less code. That is the promise of Open APIs – write much less code.