How blockchain can take the financial industry beyond APIs

In the developing world of fintech, many platforms are based on application programming interfaces (APIs). These APIs are essential to provide the customer’s own systems with the ability to consume specific services rather than through a website or other human-machine interface. They are a major part of providing financial services, although they are not new, their adoption has increased due to regulatory mandates such as OpenBanking and PSD2.

However, while APIs are an essential next step in any company’s digital service offering, they also present specific problems and notable bottlenecks. Building effective APIs takes time and money, not to mention talent, and that’s in short supply. You can of course also buy APIs, but then that means companies have to pay for potentially several different products which then all have to be tied together. Then it’s still an integration issue that leads to potential compatibility issues and similar headaches.

Fortunately, another option is beginning to emerge. Thanks to the development of blockchains and a broader family of distributed ledger technologies, there is a new wave of services that is expected to turn the current API ecosystem upside down, saving time, money and effort. resources for the companies that use them.

Issues with the current API landscape

APIs are inherently designed to communicate bilaterally between only two parties. Each service talks to the next service, which must then talk to the next service, and so on. It was fine when there were only a handful of modules being implemented, but as more interfaces emerge, the underlying problem becomes more and more complex. This leads to a noticeable slowdown in the speed and quality of business service as it has to go through many stages behind the scenes.

The promises offered by open banking initiatives, for example, will never truly materialize because of this disconnection of data and the resulting cobwebs of bilateral connections. The current breed of APIs just aren’t designed to connect in complex, multi-level ways, and so right now there’s not much they can do about it.

This current scenario with so many competing APIs has led to another problem: “platform fatigue”. Early adopters of APIs in industries such as finance and real estate are fed up with the creation of so many hubs that primarily seek to pool their data and resell it to them as a value-added service.

The new philosophy that is emerging is that a protocol should be vendor-neutral. Instead, the suppliers themselves agree on a standard to follow that is in their mutual interest. For example, USB-C rather than Apple’s Lightning cable, or – perhaps more appropriately – how the success of the Internet has been largely influenced by the adoption of TCP/IP. Luckily for developers, APIs as we know them don’t have to be the only option moving forward.

Enter the blockchain

More and more, startups are beginning to see that they are not just dependent on the standard kinds of software that have permeated the status quo until now. Thanks to developments in blockchain technology and smart contracts over the past few years, there are all kinds of new services and platforms that creators can now leverage. These platforms not only do a better job than legacy software, but do it cheaper and offer more accessibility than many comparable tools sold today.

Decentralized and global computers underlined by blockchains, including Ethereum, already have a host of software offerings that are unfettered by a single entity. What is even more important is that blockchains, when properly configured, can offer a single system capable of sharing data, managing transactions, running applications and much more in a single service. .

It doesn’t hurt that blockchains are generally very cheap to use, highly transparent, and ultimately trustless, alleviating many of the moving parts issues found in today’s API landscape. This technology fundamentally overcomes the issues of two-way API connections and provides an open and distributed communication industry rather than rushing to deploy yet another “central platform” that comes with subscription services and contracts.

However, even now the limitations of early technologies like Ethereum are giving way to better blockchain technologies like Corda and Substrate that can better meet the requirements. These new technologies allow us to share and accept data between multiple peers without contracting with a single platform or hub.

The Coadjute Network is perhaps the best poster child for the transition from traditional APIs. The platform consolidates real estate software systems, including those of real estate agents, real estate agents, mortgage brokers and lenders into a peer-to-peer network so that multiple users of different systems can cooperate, share and perform transactions. effortless transactions. In doing so, it removes the monopoly of a single centralized platform and replaces it with a comprehensive real estate market ecosystem. Soon, this model will spread across verticals across the entire retail landscape.

The road to follow

Certainly there are and will continue to be stumbling blocks along the way. On the one hand, companies need to understand that there is a serious difference between blockchains used simply to create cryptocurrency and the true potential of what this technology can offer. Education on what decentralized applications are, how they work, and how they can be implemented will take time to absorb for all. It will also be important to understand some limitations and potential technical issues, as blockchain technology will take time to mature and converge.

Then there are regulatory concerns. Since the world of decentralized technology is so new and many of these services incorporate financial assets, it can be difficult to predict how their use may be controlled or legislated by government agencies. Admittedly, this is primarily a concern for companies that implement blockchain specifically for value transfers, not so much if those networks are simply managing databases or managing a supply chain. Ultimately, how these systems are implemented will play a huge role in how they will be perceived by law, but non-financial services probably need not worry.

So, will APIs still be an important part of the industry in the future? Almost without a doubt, but the current interfaces will have to be updated and evolved using the possibilities of the blockchain. Ultimately, the existing product ecosystem could very soon be obsolete and if it does not keep pace, it will eventually be replaced.

About the Author

Richard Crook is the former Head of Emerging Technologies at the Royal Bank of Scotland, with a career spanning over 20 years specializing in leading teams to shape and deliver maximum business benefit through technology solutions for the most major financial services institutions. He is now the founder of DASL, Digital Asset Shared Ledger, enabling your digital asset strategy with proven, tested and trusted technology.

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