It is obvious now, five years later, that those worries were unjustified. Five million open banking-driven payments were made by UK businesses and consumers in May 2022 alone. In the same month, the open banking community in the UK made a record 1 billion API calls.

So, rather than being a limiting action by the regulators, Open Banking turned out to be a welcome surprise. It created new possibilities and demonstrated that working with APIs is not a restriction, but rather exactly the contrary.

The market has only recently realized that. Twenty years ago, disintermediation—the notion that you needed to own and manage your own supply chain to decrease complexity—was advocated by every management consultant in the industry.

When major banks began to operate online, this continued to be their primary motivation. They created their own websites, banking applications, and mobile solutions with the intention of controlling everything from back-end operations to mobile banking.

In actuality, this increased complexity. It meant that a bank’s internal database, which was set up on its on-premise server farm, had to be talked to when the bank wished to develop a web page. From the beginning to the end, it was all the bank’s duty. As a result, the company might have needed several developers to work on this entire tech stack, each with overlapping skill sets.

To be a significant player in banking today, however, you must be skilled at exposing and consuming APIs owing to Open Banking and APIs. To enable this modern method of software development, you must have the appropriate architectures, expertise, and tools in place.

I’d even go so far as to argue that we are now living in a time of “de-disintermediation” since what Open Banking truly means is that the bank can no longer keep anyone out and that everyone must operate in a new, “more open” manner.

Welcome to the new de-disintermediated financial services IT world

Customers can see this on their mobile banking app, which is now filled with cordial inquiries about if they want to connect another one of their accounts and consolidate them all in one location. Personally, I appreciate this since it makes sense to me as a consumer, a businessperson, and a digital citizen.

I also admire how de-disintermediation and open banking have fostered the growth of numerous new firms. Because of embedded banking, which enables Buy Now, Pay Later and allows Klarna to operate, there has been a significant increase in creative FinTech firms.

Additionally, I am observing a great deal of progress in the ecosystem’s technology and architecture sectors. You must design your application so that someone else can intervene at the application server layer if you want to implement open banking. Additionally, you must permit the application server of the third party to communicate with other application servers, each of which has a database as its back end.

The API has truly excelled in this area. The fact that application programming interfaces—a technology that has been too long without a business case—make it so simple for two pieces of software to communicate with one another via a contract is welcomed by IT professionals at forward-thinking financial services companies.

Even better, the contract requires fair play from every link in the chain. For instance, I must disclose the API call I use to get the data if I’m developing an application that lets users access their bank accounts and returns their statements or most recent transactions. You must provide me with live session credentials and the information I require, and everything must be done in the same format that has been agreed upon—usually JSON, or JavaScript Object Notation.

App modernisation + liberalisation = good times ahead

The truth is that those who construct their processes, skill sets, tools, and architectural designs in a manner that welcomes this mode of working will prosper in an open banking/de-disintermediated/API-centric future. Delivering on this novel strategy will create economic value.

Moreover, this signals the demise of huge, monolithic financial applications. Developers can now remove the front and use APIs instead of proprietary apps. This means that even if your back end is still a monolithic mainframe app in your data center, you can outsource the value it provides more successfully. You can add value to it by exposing it to the web and granting access to it to selected partners thanks to APIs.

You may be more familiar with this method of operation as cloud-based microservices architectures. The modernization of apps and the widespread understanding that microservices architectures are effective for utilizing cloud architecture are two distinct technological and commercial development strands that intertwine in this context. The push for Open Banking, which aims to increase market competitiveness, has demonstrated that using the API is the best approach to adhere to legal requirements and embrace this fantastic new architecture.

There is also a database component to this since breaking up the large financial systems is the first step toward de-disintermediation, which also breaks up your data. On the back end, you can’t just rely on your tried-and-true monolithic database (which is fairly pricey). Even if you succeeded, you would still be plagued by the persistent issue that cloud-based microservices, which attempt to put all data processing as close to the client as feasible globally, never mesh well with on-premise monolithic proprietary databases.

Given this, it is not really possible to have all of your data stored in a fantastic data barn outside of London. You must transition to the contemporary data layer, which is essential to this microservices design.

How about ending the banking IT ‘technical debt’ issue

Now is the time to give thanks to the Open Banking creators, who weren’t (as feared) awkward individuals who wished to prevent you from doing things. As a banking CIO, you should consider them as benefactors who have opened the door for you to access a significant amount of innovation and business value in a supply chain that you are no longer required to fully own.

If you accept this, a lot of your daily job—which is actually simply paying off technical debt and fixing the work your predecessor accomplished when John Major was the prime minister—can be eliminated. You can rewrite it from scratch, make it an API, and let someone else create a front end for it.

The advantages of Open Banking are obvious to me. However, if you don’t see this as an opportunity and instead view it as just another IT responsibility, you might want to rethink how much of an impact you actually have on the company.