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Banking Distribution Evolving: Apps to APIs, a Transformation Unveiled.

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TLDR:

Banking has evolved from face-to-face interactions to self-service banking through ATMs and the internet, and now to 3rd party served banking through APIs. The introduction of Open Banking and PSD2 regulation in 2017 enabled 3rd parties to access banking data and offer innovative banking experiences. This has led to the rise of Banking as a Service (BaaS) and the embedding of banking products and services by 3rd parties without the need for a banking license. The next shift in banking distribution is the move towards componentized banking services and products that can be accessed through APIs by 3rd parties.

Before the introduction of technology, banking was conducted face-to-face, often in dedicated branches with physical money. The first forms of automation came in the form of ATMs, which initially only allowed balance inquiries and cash withdrawals. In the 1980s, telephone banking and home banking using computers were introduced, followed by internet banking in 1996. Mobile banking experienced significant growth after the launch of smartphones, and by 2016, over 50% of banking customers in developed countries were using internet and mobile banking.

In 2017, Open Banking and PSD2 regulation were introduced in the UK and Europe, allowing 3rd parties to access banking data and initiate payments with customer permission. Banks had to provide APIs to enable this access, opening the door to innovation by fintechs. Initially seen as a threat to banks, they began leveraging this initiative to foster relationships with fintechs and offer their solutions in marketplaces. This marked a strategic shift in banking distribution.

Banks have traditionally held the customer relationship, but the rise of 3rd party served banking has allowed for more personalized and richer experiences. This has led to the launch of BaaS, where 3rd parties embed banking products and services into their offerings without needing their own banking license. BaaS allows for complete customer journeys and removes friction associated with dealing with banks separately. Additionally, 3rd parties are using banking data to drive deeper customer knowledge and loyalty.

The next shift in banking distribution is towards componentized banking services and products that can be accessed by 3rd parties using APIs. This allows for greater scalability and innovation, as banks no longer need to build everything in-house. APIs enable the seamless integration of banking services into various platforms and applications, making banking more accessible and convenient for customers.

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