The Emergence of Open Banking and APIs

By: Paola Gasca, Analyst

References “Open Banking and the Future of Financial Services” published by MuleSoft

Open banking is essentially a system that provides users with a network of a financial institution’s data using APIs (application programming interfaces). The idea of open banking is appealing to clients of financial institutions as it relies on a network, not the centralization of banks, to define how financial data should be created, shared, and accessed. The concept of open banking has been reluctantly accepted by most financial institutions as it is seen as a threat to established banks. Essentially, open banking forces large, established banks to be more competitive with smaller and newer banks; in order to compete with open banking systems, established banks have to change their operating processes, adopt new methods, and spend money adopting new technology. Financial institutions that adopt an open banking system are more likely to see lower costs, better technology, and better customer service.
Open banking is attractive to clients as it provides them with easier and quicker access to more information. Open banking APIs facilitate easy fund transfers, evaluate consumer transaction data, and can compare product offerings to identify the best financial products and services for a consumer. Additionally, open banking systems can help lenders evaluate a client’s financial situation and risk level. The use of open banking APIs makes data more accessible to clients and their financial institutions, making data procurement much easier and faster.
The concept of open banking revolutionizing the financial industry, meaning established banks would be wise to adopt the new technology.

“Those who treat Open Banking as an opportunity to re-define and prioritize what value they add in the value chain will be thrivers, and will win, both short- and long-term”
“Traditional banks know that to compete [with newer, more technologically advanced banks] they must develop digital capabilities to avoid being dis-intermediated completely by new entrants with superior, more agile offerings”.

APIs: Application Programming Interfaces

An API, or Application Programming Interface, is a programming code (or set of codes) that queries data, analyzes appropriate responses, and sends instructions between softwares according to the analyzed data. APIs are often used in trading in the form of algorithms. For example, banks managing foreign exchange trades will use automated trading algorithms to determine a markup price between currencies; an API helps connect data from involved financial institutions to expedite the exchange of information.

Prudential Financials’ Recent Acquisition Highlights the Influence of Digital Transformation in Business

This post references an article originally published by The Wall Street Journal on September 5, 2019 and an interview published in the Financial Times on August 28, 2019. 

Prudential Financial Inc. has acquired online startup and life insurance provider Assurance IQ Inc. for $2.35 billion. The deal is an attempt by Prudential to combine their traditional services with the efficiency and effectiveness of “insuretech” firms to reach a broader audience. The merging of traditional insurance companies with online startups is a current trend, The Wall Street Journal reports, which seeks to “benefit from data analytics driven by algorithms”. Assurance currently uses “data science and machine learning to assess needs” and attract customers in a mutually beneficial way.

The acquisition highlights the unstoppable influence online startups and algorithm-driven business practices are having on every market. In a recent interview for the Financial Times, Costis Maglaras, who serves as the dean for Columbia Business School, emphasized the importance of recognizing and adopting digital transformation. “We need to embrace how tech and data algorithms are actually transforming different businesses”, explains Mr. Maglaras, “Data analytics is essentially transforming pretty much every industry”.

We see data analytics transforming the FX Markets. BII is a leader in analyzing FX Algorithms. It is notable with FX Rate Integrity®, BII is helping clients benefit from data analytics and maintaining fair and competitive FX Markups.

Read the full story on the Wall Street Journal.


-Paola Gasca, Analyst

MarketAxess Success Highlights Rise of Automation in Trading

This post references an article originally published by the Financial Times on August 30, 2019.

MarketAxess has qualified for the S&P 500 index of biggest U.S. companies, signaling a new era in trading. “The days of young men and women barking into phones to connect buyers and sellers are slipping away. Bonds are being traded electronically and via algorithms”, writes the Financial Times. The success of MarketAxess, an electronic bond trading platform, highlights the technological change affecting markets and financial institutions. Like MarketAxess, financial institutions will benefit from the rising influence of algorithms; for example, some banks use algorithms to price and execute foreign exchange trades faster, more efficiently, and with little human involvement. However, as automation brings costs down and efficiency up, it also brings a set of challenges.

FX Rate Integrity® can help clients manage and negotiate algorithms associated with their FX trades. In foreign exchange especially, algorithms need to be closely monitored. Computer-generated algorithms are subject to error and should therefore be regularly checked. FX Rate Integrity® closely monitors corporate clients’ FX trades, helping catch rare, but probable, algorithm errors.

Read the full article on Financial Times.


EU Launches Investigation into Facebook and Libra

This post references an article originally published by the Financial Times on August 21, 2019. 

Since its announcement earlier this year, Facebook’s Libra has been subject to skepticism—a fact that has not changed despite public support by major companies. Most recently, the currency has faced scrutiny by EU antitrust regulators, who have set out to investigate the Libra project. The Financial Times reports the EU seeks to investigate “potential anti-competitive behavior” relating to the use of consumer data and “possible competition restrictions”. Since Libra’s conception, Facebook has assured the currency does not seek to shut out rival crypto-currencies or financial institutions, but rather work with them.

Blades International previously outlined the benefits and drawbacks of a cryptocurrency like Libra disrupting the market. As The Libra Project continues to move forward, we are reminded of the importance of transparency and awareness in cross border payments.

Read the full story on the Financial Times.

Read about FX Rate Integrity®

-Paola Gasca, Analyst

U.K. Lawsuit Seeks Compensation for Losses in Foreign Exchange Transactions

This post references an article originally written by Kaye Wiggins for Bloomberg, published on July 29, 2019.

In May it was reported that five banks were being fined $1.2 Billion by the European Commission on accounts of collusion on foreign exchange trading strategies. It is now being reported that a few of those same banks are being sued in the U.K. for more than $1 billion in damages. JPMorgan Chase & Co., UBS Group AG, Barclays Plc, Citigroup Inc. and Royal Bank of Scotland Group Plc are being sued for their participation in market manipulation via online chatrooms. The lawsuit is based on the accusation that market manipulation by the banks caused pension funds, asset managers, hedge funds, and corporations to lose out between 2007 and 2013.The suit seeks compensation for the losses.

The case is expected to take three to five years and was filed by Scott+Scott Europe whose U.S. branch, Scott+Scott Attorneys at Law LLP, had previously led a class action suit resulting in $2.3 billion in settlements. It is notable that Blades International, Inc. helped a client earn a modest settlement which was a small portion of that $2.3 billion fund in the U.S. This highlights the need for FX Rate Integrity®, which helps corporate clients receive appropriate reimbursement in the event they were receiving Excessive Markups for their FX transactions.

Read the fully story on Bloomberg.


-Paola Gasca, Analyst

Amex’s FX Department Sought to Increase Revenue, Instead Became an Example of Dishonesty in the FX Market

This post references an article originally written by AnnaMaria Andriotis published by the Wall Street Journal on July 23, 2019.

After a yearlong investigation regarding misrepresented FX prices, American Express has found themselves issuing refunds to nearly 200 customers. The refunds are the result of a surprising practice by Amex’s foreign exchange unit which “routinely increased currency conversion rates without notifying customers in an effort to increase revenue”, the WSJ reports. The investigation found that most clients affected by the dishonesty are small and midsize business clients who regularly engage in international business.

The reimbursements are not only costing American Express an estimated $1.6 million, but also their reputation as an integrity-based company. The investigation and end-result further highlight the importance of honesty and transparency in the foreign exchange market. Of course, as with most FX probe situations, it is the part, not the whole, to blame as certain departments may feel more pressure to meet goals or feel less monitored than larger more impactful departments. Regardless, it will be interesting to see if financial institutions begin to implement more honest practices or continue with business as usual. For the meantime, corporate clients are wise to learn and understand more about their FX transaction costs and fees. A service like FX Rate Integrity® can provide the knowledge and support corporate clients need.

Read the fully story on The Wall Street Journal.

-Paola Gasca, Analyst

Facebook’s Libra and the Call for Integrity

Facebook created Libra to serve as a “simple global currency and financial infrastructure that empowers billions of people” (Libra Association Members, 2019). The launch and integration of Libra hopes to expand accessibility to global payments, while at the same time bringing an increased sense of security, integrity, and responsibility into global payment systems. The irony of it all is that a cryptocurrency created to increase trust and integrity in the market is drawing skepticism world-wide. The currency has yet to launch (original plans have a launch date in mid-2020) and it has already been met with a wave of critics questioning the security of a cryptocurrency created by Facebook—a company with a long history of security breaches and compliance issues.

While the future of Libra is still uncertain, it has generated a conversation about security and integrity in the financial industry—especially in global payments. As far as banks are concerned, we are likely to see a decline in foreign exchange transaction costs (i.e. the rates banks charge clients) as a result of the rise of cryptocurrencies and the rise of the financial technology industry. For those concerned with security, the introduction of Libra highlights the importance placed on security and integrity in the financial industry. Currently, banks have lucrative FX payments businesses. However, the high markups attracted Financial Technology competitors starting years ago. More recently, the banks see efforts by Libra and the cryptocurrency market to move into the lucrative FX payments space.

The issues of Libra developing as a cross border payment tool and demand for reliability highlights the importance of awareness. Similarly, corporates are wise to be aware of how much they are paying in FX transactions and why. FX Rate Integrity® is a step in that direction.

Read the Libra Association’s whitepaper here.

-Paola Gasca, Analyst