Banking 2.0? They're Nowhere Near 1.0 Yet

In his recent guest post here on CloudAve, Rod Drury made some predictions for the future of financial software. One of those predictions went thus;

Business Internet Banks will emerge

One bank will get the power of the web 2.0 model and expose their banking services as a collection of developer friendly API’s and turn business banking on it’s head. It will take competing banks 2 years to catch up until those services normalize

Over on my other blog, I’ve written lots of posts berating the backwardness of banks in the past. Of late however, and possibly as a result of the *creative* banking practices being exposed worldwide, the call is growing louder for a new paradigm in banking.

So enough of the whining – what does "Banking 2.0" look like? Well to inform the answers to that question we need to look at what banks are really used for. As I see it there are two main traditional areas for them;

Deposit and lending services – where customers either deposit funds with a bank for (hopefully) future withdrawal or alternatively use bank loans (which aren’t actually real but fractional lending is a topic for another day) for their day to day needs. Here’s it’s a scale game – one of leveraging deposited cash to provide lending services. It needs rebuilding – but that’s more a regulatory than a technical discussion.

The transactional stuff – chequing accounts, bill payments, credit card transactions – stuff we’ll call the nuts and bolts of day-to-day business life. Transactions are how banks think – our business is binary to them, but in the real world as consumers of banking services our requirement are much more floating. When we receive a salary payment for instance we’re given a bank balance – this is however almost meaningless without the contextual information that services like Mint have developed to scrape the underlying data from the banks and apply some sort of personal context to it.

So what does banking 2.0 look like?

I spend an inordinate amount of time looking at accounting software (both as a user and a commentator). It seems that much of the value that the shift to the clouds COULD offer to these applications is stymied by the reluctance of banks (and the regulatory authorities that protect/control them) to open up.

As an example, with most accounting solutions I can have my account transactions imported into the application to be coded and reconciled – but this is an artificial step in what should be a totally connected process – my accounting application (for business anyway – personal finance application for an individual) is the window on my true financial position (ie not just cash in bank but assets and liabilities as well). Why then can I not shift and shape funds within my accounting application and have the transactions executed accordingly?

Which really heralds a call for a banking API. To see the lengths that an accounting vendor like Xero has to go through to interface with a bank is ludicrous. Imagine a world where banks opened up their APIs so that accounting applications, e-commerce, hell even Government agencies, could "talk" directly with the bank accounts.

It’s about efficiency – what do banks do well? Notwithstanding the current credit crisis they’ve proven secure providers of high level authentication services. They’re great(ish) at interfacing with each other and lubricating inter-bank transactions, it’s now time to open up and allow that to occur on the real, customer-facing side of the ledger.

And as something of an answer to this post – it was great to read the other day that Fidelity, one of the world’s largest financial institutions has loosened up a little and release an iGoogle gadget that allows secure bankign access directly from within iGoogle (ie without having to go to the Fidelity internet banking site). It’s a great start, and hopefully other institutions follow suit.

And no – that isn’t my bank balance (more’s the pity!)