Opening banking and the use of application programming interfaces (APIs) is presenting a world of possibilities to financial institutions. In a evolving digital environment where customer experience is the differentiator, API in banking will play a key role in helping financial institutions meet changing expectations, writes Eugene Danilkis.
APIs enable the flow of information between applications, like the valves of an engine working to improve performance and efficiency. They give different business areas within an institution the ability to easily access customer data, draw insights and create innovative products tailored to consumer, market and regulatory needs. For partners or third party developers, they provide access to the core platforms on which they can develop more innovative products.
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End customers benefit from enhanced products, services and more transparency enabling them to better manage their personal finance. It also puts customers in charge of their personal information, putting more power in their hands.
All of these combine to create a re-imagined banking system that is geared towards a common end goal, a better user experience.
Life Without APIs
Legacy bank systems are not built for this level of agility. For most established institutions the absence of a standard set of APIs, or a single consistent data model makes integrations very difficult and scaling up prohibitively complex. Systems are siloed, do not ‘talk’ to each other and need a large number of resources with specialist skills to operate and maintain.
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By GlobalDataOn the opposite end of spectrum is lean and agile technologies like cloud services and APIs which most FinTechs leverage. By creating loosely coupled ecosystems, these FinTechs drive value by leveraging technology to streamline operations, enable automated processes and reduce overall cost of doing business.
It is established institutions’ inability to move in the same manner, access and share data, and quickly innovate that is holding them back.
Modular and Simple
The industry standard use of Representational State Transfer (RESTful) APIs together with a public directory of data model component descriptions underpins the new technology. These allow a platform’s functionality to be exposed in a read and write manner offering manipulation of data in every way, not just access. Using these tools, there is no need for specialised IT or technical teams.
APIs empower in-house developers with the ability to innovative, adding new features and functionality like custom mobile apps, chatbots or voice recognition capability to their ecosystem in weeks not years. New products or iterations of existing offerings can be rolled out, integrated and modified at a fraction of the cost and time it would take with a siloed system.
APIs enable a modular system architecture allowing multiple integrations from new payment networks, customer-facing channels or custom-code for process automation to card processing services and other complimentary cloud services.
This gives institutions the flexibility to work with best-in-class providers in each area. Both the business and IT teams are able to make changes quickly, adopt new technologies or switch providers and services – all without having to depend on an army of consultants for execution and customisation.
Data Security and Regulation
In any large organisation data security is always a concern. With API-driven systems, the access to system data and capabilities is done solely through the APIs, offering significantly more security than manual or file-driven processes reducing the chance of human error.
Single Policy Enforcement points can be introduced such as API management to ensure the integrity and security of information and govern the API access centrally across systems. This is also an effective tool in combating fraud and enforcing necessary segregation of duty regulation given its ability to access and monitor information across systems.
Automated and Data Driven Decisioning
Credit decisioning is ordinarily a highly complex and resource heavy process but many FinTechs are using APIs to automate and speed up the process by using third-party services to cover critical steps.
Combining these services like identity validation and credit ranking alongside internal insights into customer behaviour decreases new loan approval times from five days to one minute. A single developer would be able to implement these business process automations in a matter of days, speeding up a cumbersome process cost effectively.
API in banking: Opening up Opportunity
Open APIs allow industry players like FinTech vendors, software providers and developers to easily integrate to an institution’s banking and lending capability. Not only does this help the institutions deliver an enhanced and personal experience, but it also offers a lucrative new source of revenue.
According to HBR, Salesforce.com generates 50% of its revenue through APIs, Expedia.com generates 90% and eBay, 60%. By creating a marketplace environment and leveraging its platform and access to data, institutions will be able to see a growing return on their API investment.
The New Norm
This technology allows for innovation and customisation in scenarios that institutions cannot possibly predict. The more people build on the solution, the more opportunities there are to differentiate. Almost like building an architecture without a precise end goal, APIs can take banks into different markets, open up innovation and allow the capability to build something unique. In time, the need to personalise services will become the new norm and it will be necessary to fall in line.
Eugene Danilkis is CEO & Co-Founder of Mambu
