Open Banking Brings Opportunity, but How to Seize It?

The best IT architectures post-PSD2 will put interconnection first 

The year 2018 is proving to be a big one for new EU-based regulations with somewhat perplexing acronyms and important consumer implications.

Just last week, GDPR (the General Data Protection Regulation) took effect amid fanfare and consternation, promising consumers greater control over their personal data. Another regulation, known as PSD2 (Payment Services Directive 2) was also enacted this year, with a familiar objective of giving consumers more ownership and control of their personal data, but this time in banking services. The end goal is to increase choice and transparency in financial services.

The rule requires banks to open their account data to approved third parties, such as financial services firms. Banks do this by giving these firms access to their APIs – software-to-software interfaces that allow outside applications to securely access the bank’s data.

By opening up consumer data and allowing access via APIs, PSD2 gives non-banking firms a chance to compete with banks in the digital payments business by building financial services platforms on top of the bank’s own data and infrastructure. For instance, a social media site could begin enabling people to pay bills there, or a FinServ firm could offer budgetary strategies based on complex analytics of personal income and spending data.

There’s no doubt consumers will benefit from increased product and service options, but this open banking model does come with challenges for both banks and the firms offering financial services, including a need for secure, high-performance collaboration with a shifting range of counterparties. Interconnection can offer answers here.

Becoming “service-oriented”

The proliferation of APIs, and the subsequent emphasis on integration and interoperability, requires a major change for banks as they design their IT architectures. Prior to PSD2, many banks had monolithic architectures built around mainframes in centralized corporate data centers. Now, they need more “service-oriented” architectures, with microservices built around their mainframe.

A microservices architecture increases agility, adaptability and scalability by splitting applications into sets of self-contained services that communicate with each other via open APIs. These services can be developed and scaled independently and assembled or disassembled as required.

But securely integrating services at maximum speed and efficiency is a challenge, especially considering the potential number of partners. For example, one Equinix customer I recently spoke with told me they needed to onboard 13 new partners this year. That’s a massive job, with major network and security implications. The “time-to-market” and crucial “time-to-revenue” windows can look uncomfortably long.

Initially, banks and financial services firms are likely to access each other via the public internet. But as relationships and dependencies grow, they’ll be seeking another level of connectivity that’s direct, safe and local. Interconnection – private data exchange between businesses – ensures maximum performance and data security, and it’s what we deliver at Equinix.

Where the players gather

Equinix’s global interconnection platform, Platform Equinix®, spans 200 data centers in 52 markets on five continents. Our platform hosts more than 1,250 financial services firms, including 170+ companies in the digital payments space. It’s also home to 1,700 network services providers and 2,900+ cloud and IT services providers. This is where all the FinServ players gather to directly connect to everything and everyone they need.

After PSD2, banks and financial services firms need to ensure their APIs are readily accessible via multiple means of connectivity that suit all types of partners. Locating API gateways with Equinix makes them easily available globally to partners and potential partners via services such as the Equinix Cloud Exchange Fabric (ECX Fabric).

ECX Fabric is a vibrant aggregation point for FinServ companies, and well-suited for the constantly changing landscape of open banking. On ECX Fabric, companies can quickly and dynamically interconnect with multiple partners worldwide. Time to market is greatly accelerated, and that agility is critical as collaboration and integration become increasingly essential post-PSD2.

Platform Equinix also brings companies and their API gateways physically closer to each other. Partners set up adjacent technology stacks whilst also getting as close as possible to their end users at the digital edge, so solutions delivered to consumers over mobile and internet networks are as high-performing and secure as possible. Other benefits of deploying open banking infrastructures on Platform Equinix include:

  • The efficiency of the access model reduces complexity and ongoing demands on network resources.
  • Extending digital control points away from core IT enhances security.
  • Firms gain secure access into all clouds, compared to locating API gateways in and managing networks from a single public cloud provider.

Collaboration, integration and security are all requirements in this new age of APIs, and Platform Equinix enables all of it.

If you’d like to know more about our global interconnection platform, our general thinking on payments trends and opportunities, or what some of our customers are up to, my colleagues and I will be at Money 2020 in Amsterdam, June 4-6 at StandG31. Please take a second to check out our videos previewing the event. You can also request a meeting at our landing page, or feel free to come by and chat. Hope to see you there!

 

 

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