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Powering Next-Gen Digital Banking Using Open Banking APIs and Blockchain Technology Embracing emerging tools like distributed ledger technology and layering it atop the core banking systems using APIs (application program interface) will allow banks to create a robust yet agile digital platform and disrupt their own business models, instead of sitting on the sidelines watching the challengers disintermediate them

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Fintech startups are disrupting the financial services industry, hacking away at the banking pie. They harness advantages that allow them to be more innovative and deliver services to customers quickly and more cost-effectively than traditional banking institutions. From lending to payments and digital banking to wealth management, they continue to overturn the industry's existing business models and grab significant market share.

Fintechs are scoring well on the funding scene too. According to research-based data, funding of FinTech startups has increased at a compound annual growth rate (CAGR) of 41 percent over the last four years, with over $40 billion in cumulative investment.

Banks, on the other hand, have been facing a whole new set of challenges over the past decade. The centuries-old banking model is changing fast, too fast for their comfort, and digital transformation initiatives have proven to be a rather bumpy ride for most financial institutions. Key issues include:

  • Legacy Systems: Designed over a decade ago, unable to adapt to today's connected digital environment
  • Deep Silos: Banks have long been siloed organizations, driven by design and regulations
  • Customer Evolution: Fast-changing behaviour of today's socially connected, digital, next-gen consumer
  • Compliance Demands: Growing compliance and costs spurred by many post-recession regulatory mandates

Additionally, digital transformation calls for a complete overhaul of how traditional banks work, and there's no dearth of internal resistance to changes required.

Meanwhile, blockchain technology has started to establish itself as a transformative force across mainstream industries. The blockchain, a cryptographic ledger comprising of a digital log of transactions shared across a public or private network, is swiftly establishing itself as a key enabler of the emerging digitized enterprise environment. This native digital technology is setting up industries for significant disruption — or crucial transformation, depending on which side of the table you look at it from.

Blockchain can be a powerful tool wherever trading occurs, trust is at a premium and people need protection from identity theft. Distributed ledgers have the potential to radically change the future of transaction and records-based industries.

Pairing legacy banking APIs with emerging blockchain technology, banks can create digital ecosystems, adjust operating models and connect with customers in whole new ways. Layering distributed ledger technology atop the core banking systems using APIs will help create a robust yet agile digital platform, offering the incumbent banks the same advantages that the Fintech startups and new challenger banks have.

From an internal perspective, a distributed ledger layered atop the core banking system will allow for:

  1. Connecting teams, sharing information and securely settling transactions across departmental boundaries as well as with subsidiaries and external partners
  2. The creation, management and distribution of next-generation smart product and service offerings primed for the digital era – payments, loans, remittances, investment products and more

From a customer perspective, a blockchain would help provide:

  1. A single digital ID for unified access to all products and services offered by the bank, including those offered by external third parties, but facilitated by the bank
  2. Anytime, anywhere access to banking services across digital channels as well as via integrated partner networks - within easy to use familiar apps and at a fraction of the current cost.

With tight coupling at the API level, the integrated platform will facilitate the seamless representation of traditional products in digital format, as well as the creation of all-new token-based digital offerings, powered by blockchain technology. The same integration bus will also assist in bringing together products from various departments and partners onto a single integrated platform and making them available to customers via multiple digital channels. Using a modular micro services-based infrastructure will accelerate the integration with external systems, help create an ecosystem play and empower the bank to leverage network effects across multiple channels.

The use of simple and intuitive interfaces will reduce friction, ensure smooth transitions and allow bankers to effortlessly create next-gen products. Likewise, it will enable the emerging generation of digital-first customers as well as newbies to instinctively participate in this new digital medium of value exchange.

In Conclusion: The competition from Fintechs and challenger banks will only get more and more fierce. But embracing emerging tools like distributed ledger technology and layering it atop the core banking systems will allow banks to get the best of both worlds – the robustness of the legacy systems and the agility of digital platforms. This will empower them to swiftly adapt to changing consumer behaviour, accelerate product and service innovation, and compete on a level footing in the new digital banking era.

Floyd DCosta

Co-founder, Block Armour


Floyd DCosta is Co-founder of Block Armour, a Mumbai- and Singapore-based startup focused on harnessing the potential of blockchain technology to counter growing cybersecurity challenges in a bold new way. Its flagship IoTArmour solution is designed explicitly to provide military-grade security for connected devices and critical infrastructure in the Internet of Things (IoT). 


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