Jim Young sits down with Jeff Henderson, EVP of Product Development at PrecisionLender, to discuss the need for APIs in the banking industry. They dig into the different types of APIs and delve into tough questions like, "How much data should you share? And with whom? And how often?"
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Jim Young: Hi, and welcome to the Purposeful Banker, the podcast brought to you by Precision Lender where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, Director of Communications at Precision Lender.
Today, I'm joined by one of the recent additions to the Precision Lender team, Jeff Henderson. Jeff is our EVP of Product Development. We're going to talk today about APIs and their changing and growing role in banking, but first, we'll give Jeff a proper introduction. Jeff, tell us a little more about your role at Precision Lender, not every previous career stop but just a couple that led you to here.
Jeff Henderson: Sure. My role at Precision Lender is EVP of Product Development, so I run the product management, the product developers, and the client support teams. We specifically call this product development because we don't view this as an engineering team, we expect our software developers to be product developers, not someone sitting in a corner coding away. We expect them to be interacting with customers and solving the customer needs.
I also really like having the client support and the product management team in one organization because this is like the bookends around the product development, they're creating what we're going to build and they're having to support it afterwards, and it ties it up, and they can use that information to go into the creation of the next feature.
Jim Young: Okay. I guess the impetuous for this podcast conversation came, Jeff, when you showed me a chart, which I think we determined is a little bit of banking humor, but basically it showed, and I'm using my hand gestures, which is always good on a podcast, but it was a broadening gap. Basically, you had one line that showed percentage of bankers who feel APIs are important, and that's basically a linear line heading straight up and to the right. Then, it had percentage of bankers who actually understand what an API is, and that was essentially a flat line moving forward.
A couple of questions from that, one, why do you think APIs remain a mystery to a lot of bankers? If they do, they know it's important, but why is maybe the knowledge level about it still not there?
Jeff Henderson: I think it remains a mystery just because the acronym is not really understood, many people fear the technology and fear of losing control of their data. API stands for Application Programming Interface. The simplest way of looking at this is it's a defined way for programs to talk to each other, for programs to get information in or out of other applications or systems as well as perform certain functions. What you do is define an endpoint, or a URL, which is what the other program would call to perform that action, and you define how you talk to that, the protocol and the definition of it. Once you define this, then other programs can talk to that application.
Jim Young: Okay. Well, let's get into a couple of things here, one, why is this important to banks then? This is an API, this is a function that is used all over the place, but why in particular is this a hot topic for banks and important to banks?
Jeff Henderson: It's important because you're having all these FinTech companies that are coming up with these features and functions, you're not going to be able to build everything that your customers need and want so you're going to have to partner with these people. The way to partner these in a defined and controlled manner is to open up, create these APIs where these different companies can get access to your data and give additional functionality to your users.
Jim Young: That's interesting because that actually builds off of a article that Dallas Wells and I talked about in last week's podcast about he had this future vision of a bank as a curator almost of a function. He said basically, "Do you want somebody who is going to give you a thousand things done okay or it can give you access to each company doing one thing excellent or extremely well?" I assume APIs, in a lot of ways, can help you do that.
Jeff Henderson: Yeah. Again, the fear is do you start losing control of your customers and you can either get ahead of it or be behind it. This functionality is going to be available, people are going to offer it up, do you ride the wave? Do you get in front of it and help to control and define it, or do you get overrun by it?
Jim Young: Yeah. That actually gets to a later question I had. But you mentioned fear a couple of times, is it a security thing? Is it this idea of bringing in someone else in your house essentially?
Jeff Henderson: Yeah, yeah. There's two different pieces of it, I look at, one is the fear of loss of control. You don't have control of your data anymore, somebody else has accessed your data, and what could they do with it? Also, the fear of you're creating this endpoint, a way into your system, into your data, and can bad buys get access or come in that way? Again, there's these different security protocols and standards of how you implement your APIs that let you control that.
Jim Young: That's what I was going to ask. You could say, "Hey, look, I feel very secure at this bank, but if that guy, that FinTech company, I can't speak for his security. What happens if he's not secure and then he essentially infects the host, for a lack of a better word?"
Jeff Henderson: Right. Again, that gets into who are you partnering with, you're going to have to partner ... Tet them. You're not going to expose your data to anybody and everybody, but you're going to have to do it. It's being picky and choosy about who those partners are.
Jim Young: Got you. Let's talk a little bit about the way forward here, if you've made the case, APIs are part of your future ... Jim [inaudible 00:06:07], with Financial [inaudible 00:06:08], there's a lot of really good writing about these type of topics, has an article recently about how open APIs ... He believes open APIs are the future of banking, but he talks about private APIs, partner APIs, and an open APIs, and he makes his case, like I said, for open. Can you talk a little bit about the differences between those three and where you see things headed?
Jeff Henderson: Yeah. I agree with him that ultimately they're going to be open APIs. Actually, even Europe is really pushing this thing called PSD2, which is payment services directive to, which is going to force, especially European banks, to have open APIs so that other people can go in and ... We can talk about that in detail in a later podcast, but the idea is I would start off with private and partner APIs. Again, these are APIs that you create specifically for certain partners and their security around them, they have to have authorization to be able to give in and get access to those. But that's where you start dipping your toe in the water, getting those relationships, then when you get more comfortable with that, then you start exposing them into more open APIs. Open APIs means, in essence, anybody can call into them.
Jim Young: Which, again, I go back to the fear thing, I could understand some nervousness there, and you're right it's probably a case of dip your toe in the pool, get a little bit used to these concepts, because I think going straight from zero to open would probably freak a lot of people out.
Jeff Henderson: Yeah, exactly. Again, the payment services directive, part of that is to open the playing field and let other people, not just the banks, control payment services, but to open it up. So certain regulators in certain industries are going to force that, so you're going to have to ride that wave but get ahead of it.
Jim Young: You touched on this a little bit earlier, and I want to get back to it, but if you get to this point, another fear element here is a clear upside for the banks to be able to call in and bring this information to different FinTech companies and offer these different services, is there a concern here, though, that the bank essentially loses its identity as a value provider for people? Is there a certain level of, I guess, sharing, that a bank shouldn't go past?
Jeff Henderson: Yeah. Again, it's are you going to play in the game, or are you going to be bypassed by the game? I think you can continue to be the portal, you can continue to be the central hub, that's why you need to partner with these other companies that are adding this additional functionality. But be the go-to place and launch off into those other functions, again, offering that up for your customers. Somebody's going to offer it up, and so do you want them to leave you and somebody else become their financial service rider because they have that other functionality, or do you want to ride that wave and offer it up? Somebody's going to offer it up, do you want to play in the game?
Jim Young: Got you. Okay. Some of our loyal listeners may recall that this is not the first time we've talked about APIs on our podcast, Jess Stone and Mike Finger did one a little over a year ago about APIs and banking. Back then, Mike did a really great job of explaining how Precision Lender works with banks and other banking technology solutions via API. Since that point, and I don't know of you can maybe [inaudible 00:09:35] this point, it is but can you compare where we are now versus where we were then? Have we changed those interactions? If so-
Jeff Henderson: Yeah. If you look at it now, we continue to build out APIs, and that is our mechanism to integrate with third parties, with whether it be companies like Encino, or Dynamics, or sales force, the APIs are the way we're communicating back and forth and sending data to those companies.
We also use our APIs for things like delivering the funding curves to us, or we're also building out our API to receive our customer's core data, which a thorough relationship awareness module, we also have APIs for things like data feed, such as uploading, downloading, the bank's opportunities, relationships, security, there's user management functionality, the assumption sets ... Again, it's the way that we're getting all the data in and out of our system.
Jim Young: Got you. Quick summation, you get cornered at a cocktail party by a banker who says, "my boss is telling his APIs," so the way of the future ... I'm a little freaked out, what's your quick 30 seconds to [inaudible 00:10:59]?
Jeff Henderson: Yeah. Again, the wave is coming, you need to understand it. It's not rocket science. It should be scary. You got to understand what it is and look for opportunities to, as I said, dip your toe in the water, start getting a couple of partnerships, build this out, get a little comfortable with sharing your data, getting your data out there, and then move forward because it's coming-
Jim Young: Got you. All right, well, that'll do it for us today. Thanks for listening. You can always find more information about today's episode in our resource page at precisionlender.com. If you like what you've been hearing, make sure to subscribe to the feed in iTunes, Sound Cloud, Google Player, or Stitcher. We love get ratings and feedback on any of those platforms. Thanks for listening. Until next time, this has been Jim Young with Jeff Henderson, and you've been listening to Purposeful Banker.
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