NACHA Takes Collaborative Approach On API Standardization
NACHA, the organization that is responsible for the clearing of ACH payments in the US, is working with various high profile companies in the payments industry to create a collaborative approach to API standardization.
NACHA says that while numerous payment processors and financial firms have adopted APIs, the benefits of doing so could be much improved if they were standardized. But what are NACHA’s other aims in taking a collaborative approach, and what would API standardization mean for the payments industry?
NACHA & Its API Standardization Initiative
In its own words, NACHA states that in an:
“Attempt to move standardization forward, NACHA has established the API Standardization Industry Group.”
As NACHA further explains on the website, the aim of it is to create a ‘playbook’ that will:
“Serve as a tool to assist financial institutions, businesses, fintech companies and other industry stakeholders with the creation of a standardized API ecosystem that can enhance support of the payments and business needs of industry participants.”
The group is open to leaders from the financial industry, businesses, fintech companies and service providers etc., and by collaborating the aim is to create advances in the in the worldwide payments sector.
So far, NACHA’s efforts have brought some of the best known financial institutions on board to support their move towards standardization; they include JP Morgan, Wells Fargo, Intuit and the Bank of America, as well as major credit card companies, Visa and MasterCard, and the group is still open to new members.
The group had its official launch in March, and the importance of API standardization in the finance industry is something that NACHA will discuss further at this year’s Payments 2017 conference, which is scheduled for late April 2017.
NACHA & API Standardization: The Background
This new initiative was announced following the exploratory research that was conducted in conjunction with the research firm Accenture to establish, among other things, how standardization could tackle ‘pain points’ in the ACH system, as well as benefit the payments network as a whole.
At a result, George Throckton, NACHA’s Managing Director, concluded:
“Many payments providers and leading financial services firms have been using APIs to broaden and enhance services, and increase automation and strengthen security. But what’s lacking is standardization.”
Following the exploration period, NACHA noted a ‘strong demand’ for standardization and determined “that NACHA is well positioned to advance the discussion around API standardization and help identify a path forward.”
An API, or an application programming interface is defined as: “ a set of commands, functions, protocols, and objects that programmers can use to create software or interact with an external system. It provides developers with standard commands for performing common operations so they do not have to write the code from scratch.”
APIs are used throughout the tech industry, and without them, many of the technologies we take for granted today wouldn’t be possible. They are also used widely in healthcare, and they are helping B2B companies to evolve.
Why API Standardization?
There are numerous benefits to API standardization, which could have offer several advantages to the payments industry such as:
Improved security – security is a major concern for the payments industry, and for consumers. Worries over security is limiting the use of mobile payment adoption, and a significant percentage of shoppers are cautious about buying online due to security fears and worries about identity theft. NACHA’s work on standardization could help make the payments industry safer overall and boost consumer confidence in the payments sector.
Greater efficiency – APIs improve efficiency by allowing automation in the payments industry and real time payments. They also improve access to data, making it available to a much wider group, including new start-ups and rival companies.
Improved innovation – the payments industry relies on innovation to aid it in moving forward and developing new payment methods etc.
APIs also allow collaboration, experimentation and easy access to technology. Without them, we wouldn’t have some of the major developments in mobile technology or some of the advances in blockchain. Greater access to data would also help to fuel innovation and assist in the creation of new products, and this would benefit consumers by forcing companies to become more competitive.
Payments Industry & the Use of API Standardization
As the NACHA press release makes clear, API standardization has been used in the payment’s industry for some time, but there has been little in the way of standardization. However, this is something that many sectors of the payments industry have been actively working towards, and some governments are also encouraging the use of it.
The UK Government believes that API standardization could be beneficial to consumers by making banks more competitive as they would allow consumers to make better price comparisons to ensure they are getting the best deal, while also benefiting financial institutions and Fintechs.
However, as well as changing the banking sector, API standardization can also help aid developments in ecommerce payments, and as detailed in on article on letstalkpayments.com, W3C standardization stands to benefit both merchants and consumers who use ecommerce.
These are just some of the ways that standardization can transfer the payments industry. However, although there have been significant developments in standardizing APIs, there is no legal obligation to do so. Nevertheless, even without a regulatory need to adopt them, analysts are predicting a natural move towards standardization.
APIs have been used widely in the financial industry for some time now, allowing new innovations as the financial, payments and fintech companies evolve to keep up with changing times. However, as detailed in NACHA’s recent press release, there has been a distinct lack of standardization, which many agree is holding back the potential of APIs.
Nevertheless, has more industries come to realize the advantages of standardization, further calls are being made to introduce it more widely. In addition, API standardization could play a major role innovative in the payments industry, which is why further exploration is necessary.
NACHA’s efforts are one initiative that is helping to drive standardization forward, and the launch of the API Industry Standardization Group will start a new level of collaboration in this field.