Technological developments continue to offer opportunities to open new areas or expand existing ones in almost every sector today, in line with the needs of the industry and their ability to adapt to developments. Application Programming Interface (API) was one of the applications that gradually increased its scope and importance by highlighting the Internet and technological developments. Although different definitions are made for API in various sources, it is possible to define it as a protocol that provides the connection between software and server in its most general form. Today, APIs are used extensively in almost every industry, often in a way that the last user is not even aware of.
One of the sectors where APIs are used extensively is the financial sector. Especially banks' services and applications, as well as open banking, fintech applications, electronic money and payment institutions and innovative new products and services related to them, were among the factors that increased the importance and impact of API use in the sector. In the finance sector, besides the services they offer to their customers, the purpose of using APIs, especially compliance activities, has spread over a wide range. For example, sanctions and PEP (Politically Exposed Person) scans, customer acceptance, and verification processes can be counted as alternative API usage areas within the scope of compliance activities.
Bank for International Settlements (BIS) published a report on API standards for data-sharing (account aggregator) on 18.10.2022. The report is the third and final part of a trilogy to enable open finance through APIs under the auspices of the BIS Consultative Group on Innovation and the Digital Economy (CGIDE). The first two reports of the related report series, “Enabling Open Finance Through APIs” and “Enabling open finance through APIs: report on payment initiation” can be accessed on the BIS website.
The main objectives of the CGIDE group within the BIS, which prepared the report as mentioned earlier, were determined as follows:
- Analyzing and developing public technological infrastructures to address common deficiencies in all participating jurisdictions.
- Promoting an environment conducive to open banking through the development of potentially important APIs.
- Analyzing the effects of these public technological infrastructures on market structure and regulatory impact.
The report states its purpose as providing central banks with essential elements to examine the introduction of data-sharing infrastructures in their economies. Data sharing, one of the main pillars of open banking initiatives, can be defined as the provision of data by a data owner or provider to a third party or data consumer with the data owner's consent. Possible benefits of introducing open data-sharing models include these;
- Promoting transparency, competition, and market entry
- Contribution to reciprocity and cooperation in the financial ecosystem
- Improving the performance and value of services by combining data from different sources
- Enabling better decision-making, offering better products, and strengthening citizens' data ownership
Considering these, it is possible to talk about a holistic benefit expectation regarding regulatory institutions, financial institutions, and real and legal persons receiving services from them.
The report focuses on technical issues related to centralized, decentralized, hybrid trust ecosystems, regulation-driven and market-driven sharing models, and APIs that can contribute to implementing private and publicly managed open finance and data-sharing ecosystems. At this point, it should be underlined that the report does not include all possible alternatives for data sharing via APIs but aims to be a general reference point for countries that want to develop their own data-sharing projects.
Under the headings in the report, the following issues were mentioned;
- Fundamentals of data-sharing and related technical concepts such as API, data providers, data consumers, permission architecture, and account aggregator
- The process of implementing data sharing for central banking purposes
- Associated models, interactions, dataflows, design patterns, protocols, technical standards, and a demo
One of the emphasized parts of the report was the survey conducted with the central banks of 8 countries such as Argentina, Brazil, Canada, Chile, Colombia, Mexico, Peru, and the United States, for data sharing. The aim was to gather information on the issues related to implementing APIs for the secure and efficient sharing of customer data among financial institutions, fintech companies, and certified third parties. The design elements covered in the survey included the types of entities that will be part of the data-sharing process, design considerations for API standards, the type and use of information shared, and the main drivers for implementing data sharing.
Data from the survey showed that the participating central banks were interested in open finance, particularly data sharing, with most respondents already implementing or planning to implement data sharing as part of their open finance initiatives in the next three years. It also included the views of most respondents that increasing efficiency and promoting competition are the main drivers of data-sharing adoption and implementation in their jurisdictions.
It should not be forgotten that data sharing may lead to different preferences in terms of the model that can be used in this context, depending on each country's needs and desired characteristics. The survey results also support this situation, not highlighting any particular model. While half of the survey participants found the centralized model approach attractive, some countries showed more interest in the decentralized model. This issue is related to many factors, such as the expectations of the relevant organization in this context, retrospective knowledge, needs and the models expected to meet them. In terms of countries, having an API standard can be considered an important step in implementing data sharing. However, it is stated that only one of the participating countries had a standard on the subject, while 6 participants were planning to introduce a standard in the next three years.
Considering the API standards for data-sharing (account aggregator) report and current developments on the subject, it is possible to mention that data sharing will contribute positively to the rapid development of the financial ecosystem, encouraging transparency today and in the future. In this context, the use of API will gradually increase its importance and area of influence with both legislative regulations, technological development and innovative approaches. Accordingly, the relevant report is a valuable resource and guide for all stakeholders.