The digital hello Nordic-style

Most financial institutions in the Nordics were ahead of the rest of Europe on API connectivity. Rune Mai,

Tobias Gustafsson Niska

and Masa Peura explore how they stole a lead and what they plan to use it for

API – or application programming interface – technology has rapidly gone from being the new kid on the financial services block, to the shortcut to digitisation, particularly for incumbent institutions that can no longer afford to let themselves be hampered by innovation-limiting legacy systems.

And, while just two years ago, scepticism remained about the security of all things Cloud, again, in today’s new, COVID-induced world order, it is fast becoming the accepted way to run and scale pretty much any business, to meet growing demand for digital services.

All of which is particularly important in an environment where open banking, fuelled by regulation, including the revised Payment Services Directive (PSD2), is forcing organisations to develop at pace to meet the equally fast-evolving expectations of consumers.

But while the last 18 months has super-charged institutions to get to grips with this new way of doing things, in the Nordics, they might well ask what all the fuss is about; banks and fintechs there had already built a highly integrated financial services ecosystem. Now, they’re looking for new ways to monetise it.

We brought Rune Mai, CEO and co-founder of open banking platform Aiia (formerly known as Nordic API Gateway), Tobias Gustafsson Niska, open banking product developer for Santander Consumer Bank, and Masa Peura from Finland’s OP Financial Group, together around a virtual round table to talk about what comes next.

Here, they discuss how they’re working to monetise API technology through a new wave of innovation that’s focussed on developing profitable partnerships, maximising efficiency, saving cost and improving customer experience.

But we kick off with what we think is the best description we’ve heard yet of what an API is, from Rune Mai…

“APIs are often badged as the holy grail of the next wave of digitisation, though an API is really just a protocol that allows two computers to speak nicely to each other. They basically follow the same patterns we do, as humans: when I say ‘hi’, you say ‘hi’ to me, and I expect that because it’s the social protocol.

“We build similar protocols within the technical space that allow us to make it easier, more secure and more transparent to fetch data from a system that is not yours. Why is that important? Because the end users work more and more in the digital space – possibly ignited by the emergence of smartphones, back in 2008, which made everyone aware that they could have specific apps to serve specific purposes, such as personalisation or massaging data, so that they didn’t need to do it themselves. Facebook also appeared, enabling us to make documentaries of our lives. And all of this was, to some extent, spurred by the interconnectivity of data that allows people to access services where they are, in the apps they want.

“Today, banks have that same kind of opportunity to use APIs to build the next level of digital services, keeping them relevant and allowing them to enter different contexts where users expect them to be.

“For banks, APIs are a way of sealing off their legacy systems and then working outside them, in order to use external teams to build new types of solutions, as we’ve seen with Santander’s approach to building a more consumer-facing personal financial management app in Prosper [launched this year in partnership with Aiia].”

Tobias Gustafsson Niska agreed that APIs have been critical for Santander bank and large organisations like it.

“Product development goes so fast now. If you take six or 12 months to develop a service, you are out of the game. In the year 2000, when I started building netbanks [internet banking services], it was about building cost-efficient systems and decoupling systems from each other to build scale within a company.

Now, APIs are potential new revenue streams, giving organisations the ability to create innovative services together, as Santander has done with Prosper, using Aiia’s open banking platform. It’s a new era in which it’s important that organisations don’t try to develop everything themselves but instead look to the market, to partner up and create services.

“In the Nordics, customers have been used to digital services for longer, while, in terms of regulation, the Nordics work in a similar way to continental Europe. But we’re ahead on value-added services because of our standards, like NemID and BankID, making our services more accessible.”

Rune Mai observed: “The Nordics are very advanced in building data and account aggregation solutions; banks like OP did this almost two years ago. However, I think the next stage will centre around European payments innovation, among financial institutions and active newer players –

APIs are potential new revenue streams, giving organisations the ability to create innovative services together

Masa Peura, OP Financial Group

because of new easy-onboarding solutions that no longer rely on intermediaries.”

But PSD2 is, in his opinion, is a ‘really tricky construct’. “There are a lot of actors involved, a lot of centralised policymakers and they all have something to say in terms of the European scope. Building all of that into a coherent, simple, stable and compliant solution requires constant negotiation about how to interpret the specifics of the directives and regulatory technical standards. It requires country-by-country interpretation.

“But now, Europe’s moving faster and faster, due to the fact we’re standardising, across countries, access to banking information and payments – including payments directly through bank accounts via APIs, aided by other developments like the Single Euro Payments Area.”

Masa Peura thought there was more behind the Nordic banks’ advantage than just the technology.

It’s all about connection:

Nordic financial services have a history of collaboration

“As Rune and Tobias have said, Nordic banks started building their digital banking early, understanding the effects of mobile development. So, yes, we were quite well prepared, but there is also an atmosphere of collaboration, perhaps because we’re a bit distant from continental Europe. That said, at the moment, we are very challenged by new competition, which raises the bar for us to run even faster!”

Nordic banks are more than ready for the ‘next sprint’, according to Rune Mai.

WHO THEY ARE...

RUNE MAI is CEO and founder of Aiia, previously known as the Nordic API Gateway. Over the last two years, it has worked closely with financial services authorities and banks in the Nordics to build a high-quality infrastructure for open banking connectivity. Aiia recently expanded into the rest of Europe and is now connected to 2,700 banks, processing more than a million payments a month in more than 12 European countries, which equates to 11 million monthly logins to its platform.

TOBIAS GUSTAFSSON NISKA

leads the Nordic open banking product development team for Santander Consumer Bank and was closely involved in the launch of Prosper, the bank’s new personal financial management app for customers and non-customers, which was built in collaboration with Aiia and uses its open banking platform.

MASA PEURA joined Finland’s largest financial services operator, the cooperatively-owned retail and corporate banking and bancassurance provider OP Financial Group, five-and-a-half years ago to build its innovation and new business arm. In June, the group announced its mobile wallet, Pivo, was joining forces with MobilePay (owned by Danske Bank) and Norway’s DNB-developed, but now standalone, Vipps payment app, to create a new European payment company. Peura is SVP for everyday banking.

“I sometimes wonder why people think fintechs and third-party processors (TPPs) are different from banks and large-scale financial institutions. We should remember that banks were actually the first fintechs. Banks, especially in the Nordics, have been providing electronic payments since the 80s and 90s. Now they’re just sealing off their old cores because they built technology so early on, and preparing for their next sprint.

“In Europe, the most prominent third-party processors are banks, with account aggregation solutions and so forth. On the other hand, fintechs have been given much-needed regulatory approval. Where many European fintechs, early on, started building account aggregation solutions in an unregulated space, now everyone can do this without the burden of having dialogues with the authorities about whether they are legal or not, creating equal opportunity within open banking, and driving the agenda of innovation and competition.”

For Tobias Gustafsson Niska, streamlining which APIs were used at Santander was key.

“We focus on tailormade solutions for each partner and creating Nordic open APIs in response to increasing requests for complete solutions,” he said. working in cross-functional teams, in small iterations, releasing minimum viable products and getting out to customers for quick feedback. Masa Peura saw that put into action when he joined OP.

“We started building a new type of innovation or startup culture for new business development, introducing lean methodologies and so on. We managed to build close to 20 internal companies to create new services under the corporate umbrella, and many of them have been quite successful. Every team has an end-to-end responsibility, as far as possible, and these are the cornerstones for building a good culture and cooperation model for the API world, and working with startups.”

Many of those collaborations would have been impossible without the other piece of the innovation jigsaw – namely, Cloud services – said Rune Mai.

“The biggest hurdle, for many large-scale financial institutions, has been regulation preventing them from moving as quickly towards Cloud as they wanted to.

“Cloud, in itself, is just a different way of running operations, in a setup with infinite scalability, that is cost-effective. And this becomes increasingly important with consumers accessing institutions through digital channels more and more, especially amidst COVID. Without Cloud, many of the fintech-bank collaborations we see today would have been next-to-impossible.”

Prosper itself is a Cloud-based solution, ‘because this makes it faster and more agile for us to develop new services’, said Tobias Gustafsson Niska: “And I’d say we’ve only seen the beginning of this journey.”

“There’s been a huge shift towards Cloud at OP too, giving more scalability, less errors, and a more stable business,” added Masa Peura. “Cloud-native development enables new types of services and some of our API services wouldn’t be there without Cloud infrastructure to develop them in. So, being more in the Cloud is part of our strategy.”

They all agreed that the benefits of API technology are multiple and profound.

Rune Mai: “The plug-in infrastructure is the instant benefit. It’s so much faster today to build a team that can create a service for launch within weeks or months, instead of years. Twenty years ago, it would have been a massive effort to build something like Prosper. But companies like us can now provide out-of-the box solutions that let

Going forward, we are increasingly viewing APIs as a potential added income stream, not just a way to integrate services, but also products

Tobias Gustafsson Niska, Santander Consumer Bank

“Prosper is an example of the new era where we are opening up services for both customers and non-customers. Now, people don’t have to be Santander customers – any Danish citizen can log into Prosper and use our value-added services. It features combined services from Aiia, as well as having other open APIs, offering services for customers and non-customers, because we see this as a huge opportunity to reach out to the full market.”

Aside from the technology, banks can learn a lot from fintechs about ways of organisations focus on building really value-adding features, trusting that what’s underneath is solid enough. As a provider, we can piggyback our partners. Building on top of things, instead of from the ground up, allows them to accelerate innovation at a pace that’s increasing exponentially.

“I expect to see a lot from banks and fintechs in the next three-to-five years, because all the APIs out there are going to be more mature and people know they can trust them to build from. They don’t have to work on top of something that might break, or lacks information or functionality.”

I expect to see a lot from banks and fintechs in the next three to five years, because all the APIs out there are going to be more mature and people know they can trust them to build from

Rune Mai, Aiia

For Masa Peura, one of the main advantages is in improved go-to-market time, as well as increasing agility and reliability: “We also need to attract the best tech talent, with a tempting setting and modern tools to work with,” he added.

Tobias Gustafsson Niska saw yet another upside. “Using APIs and the Cloud enables you to focus less on IT and technology and more on partners and creating more value-added services for customers, which is the way we are all going.

“Going forward, we are also, increasingly, viewing APIs as a potential added income stream, not just a way to integrate services but also products. And they also have huge potential for improving cost-efficiency. For example, APIs can take away lots of the manual work, while improving access to that information for customers and partners.

“Essentially, we’re looking at entering new areas where we haven’t been but want to invest, such as responsible and sustainable banking. Here, we can see a huge benefit to collaborating with partners, but also internally and globally, within Santander, to create, for example, carbon footprint services for our customers.”