API monetisation – the NatWest perspective

Friday 18 November 2022 13:24 CET | Editor: Vlad Macovei | Interview

During Sibos 2022, The Paypers sat with Dan Globerson, Head of Open Banking at NatWest, to find out more about API monetisation and commercialisation, the impact of PSD3, and NatWest’s future plans



The first question would be what can NatWest do to educate consumers about the importance of APIs in banking?

In terms of educating consumers about APIs and banking, it’s really a two-part story. When it comes to individuals and small businesses, APIs aren’t really a topic of conversation. What’s important to consumers and the public, people like ourselves, is understanding the value of new services in the digital economy. By having compelling propositions which rely upon APIs and Open Banking out in the market, consumers will become more aware and comfortable with the emerging ecosystem. On the other hand, for corporates and tech-focused businesses, APIs are really a part of the vocabulary because there’s a real opportunity to directly connect with banks and embed many of those services in their own offerings.

Can APIs be monetised and become a source of revenue for banks? How does NatWest go about that?

Yes, APIs can absolutely be monetised, but again we need to be careful of technical terms. It is more about what services we could externalise that offer benefits to customers, and the public at large, while potentially providing a commercial benefit to the bank and its shareholders. From that perspective, there are some pretty interesting things going on out there. While payments have led the way for quite some time, we are seeing the emergence of embedded finance, including mortgages, business lending and more. We are also seeing services which drive the emerging digital economy such as digital ID, customer attributes, and fraud reduction services. And of course, services which were born out of global markets, such as real-time foreign exchange and risk management capabilities.

This is what NatWest thinks about, externalising products and services, making those easy to consume via a bank-wide ecosystem – the Bank of APIs. The opportunities to monetise can rise directly with customers, with partners, through embedding and the like. We started focusing more on what an API-enabled bank means with the advent of Open Banking. The investment in Open Banking was quite substantial, allowing all of our customers to consent to regulated third parties accessing their data or initiating payments on their behalf. Leveraging that foundation has enabled us to really focus on the future, on an emerging digital economy and relevant services.

How must regulators act to allow API commercialisation and monetisation?

The regulator's role isn't per se to drive monetisation outcomes, but rather to ensure a healthy, viable financial system. Open Banking was not only about competition, but also innovation. From that perspective, there must be incentives for players, startups through incumbents, to invest and disrupt. 

I believe regulators are quite aware that innovation is the other side of this Open Economy and they want to make sure that there are opportunities for all. We’re seeing a continued evolution of regulatory focus, for instance in the account-to-account (A2A) payments space. The nature of the conversation with our regulators revolves around ‘how do we make this more compelling, what is the commercial opportunity, what's the incentive to be in this Open Banking payment space’?

As we are moving closer to PSD3, what are you expecting from the new regulation/directive to push APIs and Open Banking forward towards Open Finance?

I think the priority of PSD3 (Payment Services Directive 3) is taking learnings from the past three or four years of PSD2-led Open Banking services and mandating improvements to the underlying technology as well as ensuring less friction in customer journeys. We will also see a drive towards additional product and account breadth – moving beyond payment accounts and into lending, savings, investments, and pensions. In the UK, post-Brexit, we’ve already mandated quite a few improvements, such as the use of APIs and improvements in customer consent journeys – such as the removal of 90-day reauthentication with your bank for data sharing. We started with only the largest UK banks having to provide high-quality services, but those standards and levels of oversight are being mandated more broadly. So in some ways, PSD3 regulation, which is EU-only, will play catch-up to the UK Open Banking ecosystem. Continued evolution in this space is all but guaranteed, as conversations have already kicked off in the UK with Treasury, the FCA, the Payment Systems Regulator, and the CMA. NatWest is an active participant, we chair some of the UK Finance committees on Open Finance. 

The next consideration would be how Open Banking evolves to Open Finance, from a value point of view for the public, and how Open Finance evolves into Open Everything. How can one control and share their personal data and decide who gets to see it or not? How do we ensure reciprocity in access? And most importantly, how can we ensure the public sees value in this brave new world?

NatWest was the first of the CMA9 banks to provide Variable Recurring Payments (VRPs) to the market. How will consumers and merchants actually benefit from this?

VRPs really take the concept of Open Banking payments a step further. Open Banking payments in the UK are actually a reasonably strong proposition, to begin with, because it's based upon our Faster Payments network – which is only just emerging in the EU and other markets. The fact that we were able to build Open Banking payments on top of faster payments means that payments tend to settle in a matter of seconds. That's already, in a way, world-leading.

The opportunity is that, for customers, you're still in a mode of authenticating each payment with your bank, which doesn't sound like that big of a challenge since it has been made easier with the use of biometrics on a mobile phone, for instance. However, there are scenarios where a customer would actually like to let a business know that it can initiate a payment against the customer’s account with a certain frequency, limited amount, and for a set period. That’s what VRPs bring to market. They put the customer in control and reduce quite a bit of confusion and operational inefficiency.

VRPs do that very efficiently, there’s no paperwork or anything else. Everything relies upon the same authentication process from devices like mobile phones, however, it gives a lot of flexibility to establish a payment relationship with a payee, or (in most cases) a merchant or a company. VRPs allow a lot more flexibility. For those companies or merchants, VRPs help them as well. They bring a smarter experience and they're not holding sensitive account or card information on the customers, payments arrive almost instantaneously, and fee structures should be quite attractive. There's no paperwork around setting up direct debits and the like. Considering all this, VRPs are a very viable payment type and an exciting one that helps with cost, liquidity, and control. Also, VRPs are more sustainable since there is no paper-pushing happening.

What should we expect from your bank in the future? Any interesting projects in the pipeline?

There are a huge number of ideas in the pipeline and we’re excited about continuing to expand our Bank of APIs – we see it as a position of strength in the market. You’ve already highlighted that we were the first, and thus far only, UK bank to bring Variable Recurring Payments to our customers and the market. I think that says a lot about NatWest and our desire to help customers in an increasingly digital economy, a willingness to experiment and learn, to form new partnerships, and to focus forward into the future.

We’re very much focused on embedded finance. How can we bring products to current or new customers through digital channels we don’t own? How can we enable our business and corporate customers to likewise succeed by embedding these products in their channels? This could be payment and lending options at checkout, mortgage options during the home-buying journey and far more.

We're excited about early forms of digital ID, allowing customers to consent to share their personal details. Particularly, in a gig economy, customers would like to take part in ecommerce ecosystems and can rapidly onboard by securely sharing bank-quality details. This is beyond regulation, and everyone wins. Our customer wins in that they're not filling out more forms and they become, for instance, an ecommerce merchant much quicker. The ecommerce company wins because they have confidence in the data held by a bank – helping with their KYC and AML operations and lowering both operational and fraud losses. And for us, it's a great way to stay engaged with our customers, build on our position of trust, and perhaps bring in a bit of revenue on the side. 

We are also excited about the transaction banking space; corporates and businesses of all types having direct access to their accounts, real-time reconciliation, real-time payments, and liquidity optimisation – the obvious use case lies with treasurers, how they manage liquidity, how they manage funding and capital? If you look one step beyond that, I think it gets far more exciting with the kinds of digital services that we're externalising through the Bank of APIs; businesses of all sizes can leverage those to present a better experience to their customers. It's not just banks that want to remain relevant in a digital economy. Our business and corporate customers also have that journey and the need to evolve. If we can help them with that, that's a great step forward, and a really exciting one for us as well. 

About Dan Globerson

Dan is leading our regulatory commitments in the United Kingdom and Europe, driving a culture of API enablement, and collaborating across the industry in establishing standards. Dan provides regulatory, competitive, and strategic insight bank-wide, as well as with customers and partners. Prior to this role, Dan drove the formation of Risk Solutions, leading risk and capital technology and change activities focused on improved lending capabilities, adherence with complex regulation, and advanced data insights. He has over 28 years’ experience at the crossroads of banking and technology while being associated with some of the world’s leading financial institutions in the United States, Switzerland, and the United Kingdom. Dan joined from Barclays Capital, where he led an Enterprise Solutions organisation inclusive of Risk, Finance, Treasury, Capital, Portfolio Management, credit valuation adjustment/funding valuation adjustment (CVA/FVA) Management, and Architecture.

About NatWest

NatWest Group is a relationship bank for a digital world. We champion potential; breaking down barriers and building financial confidence so the 19 million people, families and businesses we serve in communities up and down the country can rebuild and thrive. If our customers succeed, so will we. At NatWest Group, we’ve been building the Bank of APIs – expanding on the foundations of Open Banking by creating an API ecosystem that’s allowing us to supercharge our existing customer channels, embed our services into new digital ecosystems, and bring market-leading payment and data solutions to our customers and partners in innovative ways.

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Keywords: Open Banking, API, Open Finance, PSD2, PSD3
Categories: Banking & Fintech
Companies: NatWest
Countries: United Kingdom
This article is part of category

Banking & Fintech


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