Preparing for realtime payments has pushed U.S. banks to engage with APIs and open banking at a fundamental level. Look no further than core service providers such as Fiserv or Finastra, which are providing banks with API-driven platforms to integrate into a realtime infrastructure. The use of these APIs has deeper implications for the U.S. banking industry, and may turn out to be a gateway to banks as platforms, or open banking.

“The question is almost existential, if you will,” Jordan Lampe, head of strategic projects at Dwolla told Bank Innovation. “The conversation of APIs and RTP [realtime payments] is not a mutually exclusive conversation. RTPs are just the catalyst in this discussion; the question APIs are posing to banks is essentially: What is the future of banking? Are banks supposed to think of themselves as platforms? And how does that cause them to define their core competencies?”

When The Clearing House first proposed the idea to institute realtime payments in 2015, it was the first time in over 40 years that a new payment rail was being created, Vinay Prabhakar, head of markets strategy, payments at Finastra, told Bank Innovation.

The Fed Faster Payments Task Force was chartered to push this initiative forward. Dwolla’s Lampe was a part of this taskforce.

APIs Emerge 

For banks, bogged down with their existing legacy systems, there needed to be a cost-effective and technologically agile way to integrate with an RTP infrastructure without having to update their cores. And so, APIs entered the scene.

It is worth noting that this push for realtime payments in the U.S. is a market-driven change, unlike the U.K. or Australia, where it was a regulatory one. (Still, U.S. consumer awareness of realtime money movement is low.) So it is only logical that core service providers and others in the ecosystem (such as payment software platforms like Dwolla), come up with a competitive advantage for themselves in how they would serve banks with their API offerings.

“When we set out with the RTP effort, we had a few ideas on how banks can get creative about it,” Steve Ledford, The Clearing House’s realtime payments product lead, told Bank Innovation. “But now, banks and credit unions are taking it to another level. They are partnering with not just core providers but third-party tech companies and fintechs. And coming up with new ways of approaching RTP.”

One area that surprised Ledford with the amount of innovation taking place is treasury management. And although Ledford could not give specific examples, both Lampe and Finastra’s Prabhakar also mentioned the area as one to watch.

Banking Platforms vs Legacy Banks

At the heart of all this innovation and fintech partnerships, the most important “almost philosophical question,” according to Lampe, is what does the future bank look like.

It is not uncommon for banks to refer to themselves as technology companies. Banks like Wells Fargo and Bank of America have often said that they are as much a technology company as they are a bank. Even if this is not true today, in the future it will be. Banks around the world are already showing signs of this platform-driven transformation.

Singapore-based DBS Bank for instance, just last November launched an API developer platform, Tom McCabe, managing director, global head of transaction banking at DBS Bank, told Bank Innovation. He claims it is the largest API platform created by a bank, with 155 APIs across 20 categories including realtime payments.

Back in the U.S., there is no equivalent to that, yet. But with the advent of APIs in the core banking system for RTP, that might change.

“Once banks have reached that level of maturity, and start applying an API lens to look at themselves, they are going to have to focus on a particular element: payments, credit, underwriting, data aggregation,” Lampe said.

The point is, banks will have to decide if they want to evolve into being a platform instead of a traditional bank. But there will be a long wait for that. First things first, TCH is at work getting all the banks and credit unions to be RTP-ready by 2020.

“We spend a lot of time on the road educating banks and FIs,” TCH’s Ledford said.

On APIs and platform transformation, Lampe said:

“Banks need to be educated about APIs, that’s the first step… Then they need to evaluate their tech stack, and then only can the more mature conversation about using APIs begin.”

As for now, the goal, at least for Ledford and TCH, is that banks all hop on the realtime payments transformation by 2020.

“We are on track to reaching that goal,” Ledford said.