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In code we trust

I mentioned in a recent blog entry how processors are replacing third parties.  The aim of these upstarts is to get rid of the bank-in-the-middle by placing the processor-in-the-middle (but hopefully not the man-in-the-middle malware attack!).

This lowers margins considerably as the processor is doing the work of what would previously of been hands on desks.  Zopa gets rid of the costly organisational structure that takes depoists and spreads them across borrowers by placing the processor-in-the-middle.

P2P lending

Bitcoin’s stated intention from the start was to displace the banking system.  The first line of Satoshi Nakomoto’s 2009 white paper entitled Bitcoin: a peer-to-peer electronic cash system:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

All of these things have one thing in common: get rid of the fat and costly physical infrastructure and replace it with digital.


Now banks are not asleep.  They have woken up to this challenge and many are developing and offering APIs to ensure their processing is in the middle rather than someone else’s.

Interestingly, governments are also aware of the challenge.  Many may not have noticed, for example, that snuck into the UK Chancellor’s Autumn budget statement yesterday was this line:

“The UK Government is to launch a 'Call for Evidence' on how APIs could be used in banking to improve transparency and help customers compare financial services providers.”

There’s even a report on it, which is summarised as:*

Application programming interfaces (APIs) allow 2 pieces of software to ‘talk to’ one another and exchange information directly in a secure way, without the need for human input each time. Some financial services providers and financial technology firms make use of APIs in banking, but their full potential has not been explored to date.

Today (3 December 2014) the government is publishing a report which considers in detail how financial technology firms can make better use of bank data on behalf of customers through APIs and open data, and sets out the benefits that could come from adopting these in banking more widely. It is a government commissioned report, written by the Open Data Institute and Fingleton Associates.

The government is also announcing a commitment to launch a Call for Evidence in the new year, taking forward some of the recommendations in the report and, in particular, reviewing how an open API standard could be delivered in UK banking. This will set out the government’s aim for the UK to lead the world in open access to bank data via APIs, for the benefit of consumers.

Governments are moving to component based regulation as banks move to component-based competition.

The world is changing fast as processers replace people and digital replaces physical.  Are you keeping up?

Code we trust


* Hat-tip to Financial Services Club Speaker Michael Salmony of Equens for sharing this with me

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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