The middleware game in open banking is over, now is the time for the application era

It took a while but the rails connecting third party applications to your bank account has been laid. It started out with apps using your bank details for categorizing your transactions (this was mostly the PFM wave). Today the most sophisticated "use case" is a quick deposit into an application. I've encountered it most when I use Transferwise or BUX. I don't have to log into my bank account to initiate a payment: I get tossed into my banking app on my mobile and immediate transact. Reminds me of FB Login/Google Login type flows. So what's next, and who is going to build the next awesome application on open banking?

It was very important for the rails to be laid

Why am I using the word middleware? It is very poignant to use that word to describe the open banking API standard set, which is essentially providing a standard set of software applications that those not available in the banking operating environment. Middleware is usually the unsung hero when in comes to technology adoption.

REST, messaging or database protocols are all examples of incredibly powerful middleware that have 2 defining features: 1) they are fairly standardised with little or no technology differentiation - by definition they have become protocols for the industry and 2) They do not monetise themselves i.e. you don't sell protocols generally speaking

While open banking APIs might not become as essential as protocols the concept is the similar. I don't suspect each company's APIs are wholly different to one another, although how they manage these APIs and how large their network is what differentiates them. Hence, after a number of years, and some very good companies, we are now at a stage where these "rails" are commodities. So what now?

Just like in the database era, it is the time of applications to break through

Now that these APIs have become main stream, the work to build enterprise ready, out of the box products/applications has begun. What is interesting though is who is building these applications.

The companies that have built the connections (middleware) are certainly having a go. As they get to understand their customers specific needs, they will perhaps have dedicated product teams in these verticals. I fully expect them to expand beyond their current offering of connectivity via APIs to full fledged end to end products. We are already seeing this: deposits from all the European players and of course, Plaid has built a vast array of products around transaction authenticity and identity and many more players will start to move "up" from the middleware layer to the application layer.

What is most interesting though is players who are "application" first are also building their own pipes. The need to own the entire infrastructure stack is understandable, particularly in some verticals like payments. But there will come a time where resources are better spent honing and perfecting the applications built on top of these data pipes which have become a commodity. It is then we should expect true application companies to breakthrough.