Balance Sheet as a Service

Tony Mclaughlin

Tony McLaughlin,
Emerging Payments and Business Development,
Treasury and Trade Solutions, Citi

Banks need to deliver responsible, instant lending through standard APIs to E-commerce platforms.

A World of Platforms

Economic activity is migrating to digital platforms as software eats the world. In this platform world connectivity is provided by Application Programming Interfaces (APIs) and everything becomes a service. Consumers and businesses interacting with platforms have a range of financial preferences: sellers want to be paid early, buyers want to pay later, the seller wants to be paid in RMB but the buyer has USD, and so on. These financial preferences will be served within the platforms by one of three parties: banks, fintechs... or the platforms themselves. If banks wish to remain relevant, they need to publish the right APIs to deliver financial services to consumers and businesses transacting through E-commerce platforms.

What is a Bank?

Look beyond all the individual lines of business in a bank and you get to the heart of what a bank is: a balance sheet. Car loans, mortgages, savings, credit cards, corporate banking, etc. are means to generate assets and liabilities. The bank is the balance sheet.

As banks consider their future in a world of platforms they will begin to open up a panoply of retail and wholesale services through API. These APIs may not initially expose the core, but the inevitable destination is the provision of balance sheet through API. Whether you call it ‘Platform Lending’ or ‘Balance Sheet as a Service’, banks will realize that in order to deliver their core service into digital platforms, lending will need to be delivered through APIs.

“No one wakes up in the morning thinking about completing a transaction, yet we all know what both good and bad looks and feels like. APIs allow companies to more easily combine products, capabilities and services from both inside and outside their organization to create compelling user experiences for their customers.”

Ken Moore, Executive Vice President Products and Innovation Head of Mastercard Labs

iPad Charts

Revolution by Mandate

Bank adoption of APIs has been more driven by regulatory pressure than an enlightened view of the place of banks in a world of digital platforms. Open Banking in the UK, PSD2 in Europe and similar initiatives around the world have pushed banks to deliver services through API that they may not otherwise have chosen to offer.

The API revolution in banking will have started off on the wrong foot if banks see these developments as unwelcome compliance projects that provide a platform for disintermediation.

“Merchants are looking for reduced cost, friction, fraud and access to standardized, responsible finance on a global scale. Banks have the opportunity to adopt new technology solutions like cloud, APIs and the latest authentication solutions to embed themselves into digital ecosystems.”

Jason Macklin, Director of Payments
EMEA & APAC, Microsoft

Electronic Banking Redux

The API revolution in banking needs to take a different path than the development of bank specific, proprietary Electronic Banking systems. A digital platform faced with the choice of integrating with 100 different bank APIs or a single Fintech may choose the latter at the expense of the banking system.

The same realities that led to the agreement on ISO20022 will at some stage drive standardization of bank APIs. The question is when the light-bulb moment will arrive. Standards bodies, multi-banked corporates and regulators should create the impetus towards standards in retail and wholesale banking APIs, including core credit provision.

“APIs are not just another channel - we know from other industry experiences that they are a lifeline. Banks have adapted to several transitions in the way they interact with customers but the adoption of API driven platform strategies is the most consequential yet, for both external APIs as well as for internal APIs. We see a thriving future for the banks that adopt an ‘API first’ approach and take advantage of the inherent security and scaling capabilities of the modern technology platforms.”

Chae H An, CTO, Global Financial Services, IBM

The Core at Stake

“There was a time when banks wanted to build and maintain all their systems in-house, but trying to do everything can leave the core exposed to nimble competition, which we are beginning to see in digital lending. Divido provides established banks with an API driven way to connect balance sheet to merchants and consumers through our global point of sale finance platform.”

Christer Holloman, CEO at Divido

The world has not waited for banks to deliver services, including balance sheet, through API. Some digital platforms perform their own lending to buyers and sellers at massive scale through dedicated payment arms. Others integrate with Fintech lenders through proprietary APIs. A small number of banks have taken an early lead in being able to deliver balance sheet through API to digital platforms, while others have enhanced card offerings with Equal Payment Plans (EPP) that convert charges to installments.

This is decision time. Banks can double down on existing routes to deliver balance sheet to the digital economy. Others can partner with Fintechs to deliver balance sheet through their new routes to market. One way or another, banks will need to find ways to maintain and grow the lending relationship with the customer, even if the customer is embedded within another digital platform.

Platform Lending Standards

Citi is working with merchants, marketplaces, banks and standards bodies to drive the development of standard APIs for banks to deliver instant consumer finance to digital platforms. By taking this lead, Citi seeks to map out a positive path through the early days of platform banking.

“SWIFT is at the forefront of banking standardization and will continue this role in the new world of APIs. Banks should embrace the API revolution and take the opportunity to deliver balance sheet and other value added services through standardized modern interfaces.”

Stephen Lindsay, Head of Standards at SWIFT

The future of banking need not be a rearguard action driven by regulators forcing banks to open up their back offices to Fintechs. By embracing a platform strategy, banks can embed their core lending and other services into the emerging digital platforms transforming global economic activity. In this way they can generate new revenue streams and head off the need for digital platforms to develop their own financial services arms, which may compete with banks. The digital platforms have other things for their engineers to do than re-invent banking.

The Transaction Finance API

The first API standard that we seek to catalyze is an API consistent with ISO20022 and JSON standards that enables any bank to offer simple installment financing into a digital platform. As the digital economy grows, the appetite for responsible, on-demand financing will increase dramatically, presenting incremental opportunities for banks rather than zero-sum substitution with other forms of lending. The Transactional Finance API enables merchants to tap into large balance sheets through standard interfaces – much preferable to proprietary connections to smaller lenders.

As banks find new commercial opportunities to finance purchases through the Transactional Finance API they may move on from a compliance mindset and may proactively look to address other forms of friction such a burdensome Strong Customer Authentication (SCA) mechanisms. There are a host of advanced and secure SCA methods available and coming online that can make the checkout process both secure and frictionless, if only they are adopted.


“Banks are better positioned than anyone else to offer credit to their customers in connection with online purchases but their presence in that business is so far relatively modest. There is an obvious opportunity for banks to work with payments-focused Fintechs in order to get distribution for credit at merchant check-out.”

Oscar Berglund, CEO, Trustly

Platform Future

Globalization 2.0 is a world of digital platforms that will drive the next wave of global economic growth. These platforms will embed financial services and banks can position themselves for future success by publishing the appropriate retail and wholesale banking APIs. Many of these APIs should be standardized across banks because digital platforms will want to connect with many banks and not squander precious engineering resources on proprietary connections. There will be scope for value added, unique APIs from different banks on top of a base level of services.

Platform lending is already a reality but largely driven by non-banks. It is important that banks quickly develop responsible lending APIs based on global standards, along with critical capabilities like instant lending decisions for existing and new customers. Banks can embrace a platform future by joining the development of the Transactional Finance API, connecting their balance sheets directly to digital platforms and powering the growth of the global internet economy.

“Banks need to be able to deliver the core service of lending through APIs into digital platforms. Going forward that is going to be table stakes. To achieve this, banks will need to develop key capabilities, especially the ability to lend to existing and new customers on demand, and also to deliver a frictionless Strong Customer Authentication at the point of sale.”

Jacqueline Morcombe, Global Solution Lead, Lending, Finastra