In the developing world of fintech, many platforms are based around application programming interfaces (APIs). These APIs are essential for offering client’s own systems the ability to consume specific services rather than through a website or other human-to-machine interface. They are a major component in financial services provision, while not new their adoption has increased due to regulatory mandates such as OpenBanking and PSD2.
However, while APIs are an essential next step of any firm’s digital service offering, they also present specific issues and notable bottlenecks. Building effective API interfaces takes time and money, not to mention talent, and these are in short supply. You can of course also purchase APIs, but this then means businesses need to pay for potentially several different products which all then need to then be linked together. This is then still an issue of integration which leads to potential compatibility issues and similar headaches.
Fortunately, another option is beginning to emerge. Thanks to the development of both blockchains and a wider family of distributed ledger technologies, there is a new wave of services that stand to unseat the current API ecosystem, saving both time, money, and resources for businesses that use them.
Issues Facing the Current API Landscape
APIs are inherently designed to communicate bilaterally between only two parties. Each service speaks to the next service, which then needs to speak to the next service, and so on. This was fine when there were only a handful of modules being implemented, but as more and more interfaces emerge, the underlying problem grows increasingly complex. This leads to a notable slowdown in the speed and quality of the business service because it must go through so many steps behind the scenes.
The promises offered by open banking initiatives, for example, will never truly come to fruition because of this disconnect of data and the resulting cobwebs of bilateral connections. The current breed of APIs simply aren’t designed to connect in complex, multi-tiered ways, and so for the time being there is little they can do to remedy this.
This current scenario with so many competing APIs has led to another issue – “platform fatigue.” Early adopters of APIs in industries such as finance and real estate are growing tired of so many hubs being created that seek to primarily pool their data and sell it back to them as a value-added service.
The new philosophy emerging is that a protocol should be independent of vendors. Instead, the vendors themselves agree on a standard to follow that is in their mutual benefit. For example, USB-C rather than Apple’s lightning cable, or — perhaps more appropriately — how the success of the Internet was factored largely on TCP/IP being adopted. Fortunately 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 simply reliant on the standard types of software that have permeated the status quo so far. Thanks to developments over the last several years in both blockchain technology and smart contracts, 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 provide more accessibility than many comparable tools being sold today.
Decentralized, global computers underscored by blockchains, including Ethereum, already have a wealth of offerings for software that remains unimpeded by any single entity. What’s even more important is that blockchains, when correctly set up, can offer a single system that can share data, handle transactions, run applications, and much more all in a single service.
It doesn’t hurt that blockchains are generally very cheap to use, highly transparent and ultimately trustless, which smooths out so many of the moving part issues seen in the current API landscape. This technology basically leapfrogs over the issues that come with bilateral API connections and offers an industry of open and distributed communication rather than the rush to roll out yet another “hub platform” that comes with subscription services and contracts.
However, even now, the limitations of the early technologies like Ethereum are giving way to better blockchain technologies like Corda and Substrate which can better meet requirements. These new technologies enable us to share and agree upon data between multiple peers without contracting to a single platform, or hub.
The Coadjute network is perhaps the best poster child for the transition away from traditional APIs. The platform aggregates property software systems, including those of estate agents, conveyancers, mortgage brokers, and lenders into a peer-to-peer network so that multiple users across various systems can cooperate, share and transact effortlessly. In doing so, it removes the monopoly of a single centralized platform and replaces it with an entire property market ecosystem. Soon this model will permeate into verticals all across the business landscape.
The Road Ahead
To be sure, there are and will continue to be some stumbling blocks along the way. For one, businesses need to understand there is a serious difference between blockchains used merely for creating a cryptocurrency versus the true potential of what this technology can offer. Education about what decentralized applications are, how they work, and how they can be implemented will take time to be absorbed by all. It will also be important to understand certain limitations and potential technical trouble spots, as blockchain technology will take time to mature and converge.
Then there are regulatory concerns. Considering that the world of decentralized technology is so new, and many of these services have financial assets built into them, it can be tricky to predict just how their use may be monitored or legislated by governmental bodies. This is admittedly mainly a concern for companies who implement blockchain specifically for transfers of value, not so much if these networks just run databases or manage a supply chain. Ultimately the way these systems are implemented will play a huge role in how they are seen in the eyes of the law, but non-financial services probably have little to worry about.
So, will APIs still be a major part of the industry moving forward? Almost undoubtedly, but the current interfaces will need to be updated and evolved utilizing the possibilities of blockchain. The bottom line is that the existing ecosystem of products very soon may be outdated, and if they don’t keep up, they will ultimately be replaced.
About The Author
Richard Crook is former head of Emerging Technology at Royal Bank of Scotland, with a 20-plus year career specializing in leading teams to shape and deliver maximum business benefits through technology solutions for the largest financial service institutions. He is now the founder of DASL, Digital Asset Shared Ledger, enabling your digital asset strategy with technology that’s tried, tested and trusted. https://dasl.io
Contributors
