Global financial cooperative and standards body SWIFT has released a new standard for the pre-authorisation of funds, expected to reduce complexity and support further innovation in Open Banking.
Modelled on SWIFT’s Second Payments Service Directive (PSD2), the new API standard will allow banks to set aside funds for transactions in advance and issue a guarantee that the future payment will be honoured.
The introduction of the new standard comes in response to what SWIFT sees as the increasingly fragmented adoption of API formats across the global FSI sector, particularly with the progressive rollout of independent Open Banking regimes across the globe.
Thus far, the deployment of discrete, non-standardised APIs by banks and other established FSIs has required third parties to implement different data structures, workflows, and security considerations for each unique interface, increasing time, complexity, and design considerations. For stakeholders, this patchwork arrangement has been regarded as neither customer-friendly nor efficient.
Consistency in API formats, SWIFT stressed, will allow third-party banking partners, including merchants and fintechs, to design their services with a single API format in mind.
Embrace of a common API standard is expected to open the door to a richer array of third party partnerships for banks, potentially increasing the scope of banking products and services on offer, whilst facilitating better and more dynamic sharing of customer information.
Commenting on the API standard release, Stephen Lindsay, head of standards at SWIFT, said the standards body is uniquely positioned to tackle fragmentation in API formats globally.
“Our work on the pre-authorisation of funds API is another example of the central part we are playing in ensuring the industry can make the most of the new Open Banking landscape,” he said.
Tony McLaughlin, managing director, treasury and trade solutions at Citi, said the new standard would create a “collaborative framework” that will take Open Banking APIs “beyond the regulatory minimums”.
“The global banking community must come together to provide the full suite of retail and wholesale banking APIs so that we can provide the financial layer of the digital economy,” he said. “The world of platforms provides unlimited new opportunities for banks if they adopt an ‘API first’ mindset.”
The new API standard builds on an earlier Pay Later API global standard published earlier this year by SWIFT. The Pay Later API standard allows customers to instantly view the loan options available from their bank at a point of purchase, select the relevant option, and have funds immediately available.