Updated Oil: A Freshly Developed Ozone API Resource Allows U.S. Financial Institutions to Estimate Their API Infrastructure Expense Construction
U.S. Banks Brace for Significant Costs in Building and Maintaining API Infrastructure for Open Banking Compliance
In response to the finalization of Section 1033 rulemaking under the Dodd-Frank Act, U.S. banks are gearing up for substantial investments in building and maintaining API infrastructure. The costs associated with this endeavour are multi-faceted, encompassing technology development, security, compliance, and customer data access management.
Ozone API, a leading provider of Open Banking platforms, has launched a cost estimation tool, the 'Build It Calculator', to help banks assess these costs more accurately. Eyal Sivan, the General Manager, North America at Ozone API, emphasized the importance of banks having accurate data to make informed decisions regarding their API infrastructure.
The 'Build It Calculator' uses various inputs, such as project duration, hosting costs, the value of a bank's deposits, and staffing needs, to estimate the cost of developing an in-house API infrastructure. It takes into account Ozone API's experience delivering Open Banking platforms globally, offering banks a way to make informed decisions about whether to build their own infrastructure or work with partners.
One of the key considerations for banks is the heavy investment required for infrastructure setup. As JPMorgan CEO Jamie Dimon noted, these costs can be "a lot of money" to build and maintain systems to serve third-party data requests.
Another significant factor is ongoing maintenance and operational costs. Supporting secure API access involves continuous expenses related to technology upgrades, security enhancements, and customer consent management. The APIs must comply with evolving security standards such as the Financial Data Exchange (FDX) API and the Financial-grade API (FAPI) security protocol, which calls for advanced authentication and fraud prevention measures.
Security and risk management are also critical concerns. Banks must carefully address heightened fraud and data breach risks associated with opening APIs to third parties. The regulations encourage replacing outdated and insecure screen scraping with controlled, token-based API access and granular consumer consent options, both of which require sophisticated technical controls and monitoring.
Regulatory compliance and ambiguity pose challenges. The framework around Section 1033 remains unsettled, with the Consumer Financial Protection Bureau (CFPB) reconsidering the rule’s implementation, fees, and authority. This regulatory uncertainty impacts banks’ investment decisions, as rules could be vacated or revised, affecting long-term ROI on API infrastructure.
Monetization and cost recovery debates further complicate matters. Banks like JPMorgan argue that charging third parties fees for API access is necessary to recoup infrastructure and operational costs. However, this practice faces legal challenges and criticism for potentially violating the rule’s intent to ensure free consumer data access.
Competitive pressures also loom large. Banks must consider user experience and market retention when investing in their infrastructure, as poor API performance or costly access models can drive customers to fintech alternatives.
While the specific quantified outputs from Ozone API's 'Build It Calculator' are not detailed, the tool likely helps banks estimate costs across design, development, security implementation, compliance, and maintenance phases, contextualizing them within the regulatory landscape described. The tool has been validated by US financial institutions and provides banks with a clearer picture of what Open Banking compliance may require in terms of resources and recurring costs.
Currently, the 'Build It Calculator' is live in the US, with plans to expand into additional markets globally, including the UK, MENA, LATAM, and APAC regions. The tool is designed to help US banks understand the scale of investment required for building their own API infrastructure to comply with Section 1033.
- The 'Build It Calculator', a cost estimation tool by Ozone API, aids banks in assessing the costs of Open Banking compliance by taking into account various factors, such as project duration, hosting costs, the value of a bank's deposits, and staffing needs.
- In a global technology-driven finance environment, banks are grappling with significant costs in building and maintaining API infrastructure for open banking compliance, encompassing areas like technology development, security, compliance, and customer data access management.
- To maintain secure API access, banks must invest in continuous expenses related to technology upgrades, security enhancements, and customer consent management, ensuring compliance with evolving security standards such as the FDX API and FAPI.
- Competitive pressures in the global business landscape compel banks to consider user experience and market retention when investing in their API infrastructure, as poor performance or costly access models can drive customers towards fintech alternatives.
