Question

Which layer in banking and financial institution can “Open Financial APIs” technology disrupt?

Select one:

a. Front office

b. Middle office

c. Back office

Answer 1

There are three types of APIs currently applied in finance:

• Internal APIs used for sharing data across internal systems and users.
• Private APIs that let banks exchange data with their partners.
• Open APIs (public APIs) that allow for sharing data with a wide group of users while providing limited access to information.

Open banking is a financial services term as part of financial technology that refers to: The use of open APIs that enable third-party developers to build applications and services around the financial institution. Greater financial transparency options for account holders ranging from open data to private data.

Ultimately, all parties in the financial value chain can benefit from digital transformation opportunities offered by open banking. Someone may disagree and argue that open banking is a threat to traditional industry incumbents because traditional institutions have to share customer data and lose the exclusive right to it, despite the fact that this information was gathered and stored for decades. This is definitely a great risk for brick and mortar players, but at the same time, it encourages them to innovate. Let’s have a look at how the major stakeholders will benefit from the open banking initiative.

Better user experience. The banks will improve customer experience and enhance distribution across digital channels. Open APIs let banks easily integrate their services with third-party platforms, apps, and products. Open banking also makes cross-border expansion easier.

Lower operational costs. Another benefit is cutting operational costs, as banks can spend less time supporting foreign subsidiaries providing some services directly from the home market.

Higher competition. Customers will benefit from increased competition in the financial industry as prices will go down and service quality will go up. For example, customers will be able to use financial services aggregators to compare offers from banks and other institutions. They’ll also get remote access to a number of products that used to be available in branches only.

Added value from third parties. Third parties can access banking data, allowing them to design new products, innovate, and create additional value for bank customers. As trust in non-bank payment providers grows, open banking provides such companies with a number of opportunities in the financial services market.

In his new book 'Digital Human'Chris Skinner sets out a straightforward vision of the bank of the future.He says that the back office is about analytics, the middle office is about APIs and the front office is moving to smart apps on smart devices.

I think that the Open Financial APIs technology can disrupt the middle office layer in banking and financial institution.

The middle office plays numerous roles in financial services organisations and investment banking. It ensures that deals negotiated during financial transactions are processed, booked and fulfilled. Workers manage global agreements concerning business transactions, risk management, and profit and loss.

Though identity verification and fraud prevention are important opportunities for banks' open API initiatives, there are risks associated with data loss, identity theft, data protection violations, money laundering and financing terrorism.

The middle office is a team of employees working in a financial services institution. Financial services institutions can be divided into three sections: the front, the middle and the back office. The front office is composed of customer-facing employees such as sales personnel. The middle office is made up of the risk managers and the information technology managers who manage risk and maintain the information resources.The back office is composed of the human resources department, office managers and customer care representatives who provide support, administrative and payment services. Generally, the back and middle office involves non-revenue generating operations related to risk management and ensuring proper execution of transactions.

The middle office plays numerous roles in financial services organisations and investment banking. It ensures that deals negotiated during financial transactions are processed, booked and fulfilled. Workers manage global agreements concerning business transactions, risk management, and profit and loss. They ensure that documents are completed according to agreements. The information technology middle office designs software to support trading strategies. It manages contracted software systems such as Reuters 3000 and Bloomberg for trading.The information technology middle office assists both the back and front offices by monitoring and capturing market and marketing information.