The Growing Pains of Business Ownership

February 4, 2016
/   Insights

This article by Stefanie O’Connell first appeared on stefanieoconnell.com in November 2015. Confession – I’ve made a major mistake in growing my business. Though my earnings have climbed exponentially over the past two years, I found...

The benefits and challenges of the Internet of Things

February 3, 2016
/   Insights

The convergence of operations technology and information technology presents new and expanding market opportunities. The “Internet of Things” is a center point of this convergence. IoT can bring remarkable benefits to today’s ever-changing business...

Mobile Banking Surprises Yet to Come

It had to happen, and apparently it has: In the year just passed, according to the new report “2015 Mobile Banking, Smartphone, and Tablet Forecast” from Javelin Strategy & Research, 30% of customers used...

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Making Banking Fun: Gamification in Financial Services

August 5, 2013
/   Insights

Recently, the Banking.com team sat in on American Banker’s webinar, “Gamification in Financial Services: Five Proven Ways to Get an Edge,” which shared how leading brands in financial services have applied gamification to reach...

Technology M&As: The Beats Go On

May 29, 2014
/   Insights

The ongoing fascination with Apple’s $3 billion purchase of Beats Electronics is entirely understandable, because it’s a cool story. However, it also says a lot about what’s going on between finance and tech.

What We’re Reading

May 5, 2011
/   Spotlight

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below. Virtual Banking Worlds Provide Tangible Lessons American...

Small Business: Perception vs. Reality

November 21, 2012
/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

What We’re Reading: Thanksgiving Edition

November 22, 2012
/   Spotlight

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom. Mobile Thursday? Plans for Thanksgiving...

To what extent are banks simply technology providers? It’s a question being discussed in boardrooms around the world as the financial sector grapples with advances in technology.

And it’s one that goes to the heart of the debate among bank bosses about whether to participate in third party payment apps using an Application Programming Interface (API) or build their own standalone versions.

Naturally, there are pros and cons to each approach.

Security

It’s worth pointing out that banks won’t have much say over third-party access to accounts with the arrival of PSD2. The legislation means banks must allow third party payment providers (TPPs) access to their systems, including customer account data.

The European Banking Federation (EBF) said this “will be to the detriment of European consumers and the necessary protection of their bank accounts”.

Certainly there are genuine concerns about the security of third party firms. A report for the New York State Department of Financial Services found a third of the 40 banks it surveyed had poor safeguards when working with third-party vendors.

Regulator Benjamin Lawsky warned that “third-party firms can provide a backdoor entrance to hackers who are seeking to steal sensitive bank customer data”.

Meanwhile, McAfee Labs noted in December that there is a growing threat for mobile banking apps resulting from poor coding practices. In particular it warned that integration with back-end services is a problem, especially when a third-party developer is involved.

“Mobile apps often rely on back-end services for secure data storage and communications,” explained McAfee in a blog post. “Nonetheless, mobile app developers are responsible for integrating their mobile apps with these back-end services. User data can be exposed if app developers fail to follow the back-end providers’ security coding guidelines—a possibility that is now more likely based on the increasing amount of personal and professional business conducted in the mobile cloud.”

But are banks’ own systems likely to be any more secure? There is an argument that by keeping all activity in-house there are fewer chances for this kind of integration problem happening. However, poor coding practices can happen in either scenario.

Dr Bill Curtis, chief scientist at software analysis group CAST, said: “Badly-constructed software won’t just cause systems to crash, corrupt data, and make recovery difficult, but also leaves numerous security holes.”

It’s a potential risk that needs to be weighed against the need to get services to market quickly and effectively.

Speed

Back in 2014, banks seemed very slow to progress payment apps.  A report carried out by Finextra warned of the “glacial” approach being taken by banks, stymied it seemed by a lack of investment and in-house skills.

APIs and third party developers are a much easier and more effective way of getting the right services to market quickly.

As noted at the time, France’s Credit Agricole, Dutch bank ING and Australia’s Commonwealth Bank were among the pioneers, creating software development kits to enable third party firms to build banking apps.

Now, with PSD2 on the horizon, banks won’t be able to say no to third-party developers, as long as the consumer consents. The era of open banking is upon us, but that doesn’t mean banks cannot go their own way too.

Trust

A system may be secure but the consumer may not trust it to be so. And it’s interesting that banks hold the aces here.

A recent report for the American Bankers Association showed three-quarters of US consumers trust banks most to keep their payments safe, versus just four per cent who trust a non-bank payment provider such as PayPal or Venmo.

Innovation

Another facet to this debate is to what extent banks are able to deliver the kind of innovation and services that consumers want.

Take the case of TransferWise, a poacher-turned-gamekeeper which is reportedly in talks with up to 20 banks to embed its API over their mobile apps. Having branded banks ‘rip-off merchants’, the startup is now in a position to work with them to deliver a service that the banks’ customers want.

“Applications designed by a banker look like what a banker can imagine,” Bernard Larriviere, director of innovation for Credit Agricole, told American Banker in 2013. “We needed to have the customer’s point of view to … make us think about another way of creating applications to meet customer needs.”

Left to banks alone, the kind of innovation in banking and payments seen today would almost certainly not have happened. It’s taken outsiders – third parties – to drive change. But banks have the resources, and the position of trust, to work with the innovators to deliver something that will really help consumers. Collaboration seems the only way forward.

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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp