The Growing Importance of APIs in Banking and Finance

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By Srinidhi Feb 23, 2021

Since banks are stepping in digitalization the customer expectations from a bank have grown noticeably. This digital transformation is further accelerated due to COVID-19 restrictions. Post pandemic, Fintech has shown what you, as a financial institution or bank, can do, and how all banks require a digital plan.

Fintech is a battleground for banks and financial institutions and they try to convince stockholders that they can incorporate an effective digital path for customers. Financial institutions are trying to ensure that they venture into digital transformation while reducing costs, and at the same time not risking working resilience.

Impact of APIs in the Banking Sector

To meet the increasing customer expectations, organizations are discovering ways to offer value-added propositions, from improved payment options (for example digital wallets) to scam alerts on wearable devices and more.

More banks and financial institutions have recently begun experimenting with monetization of the APIs (application programming interface) and standardising the Open Banking APIs banking possibilities. Financial institutions are taking this path, owing to the Fintech capabilities that can transform the industry and enhance the experiences of bankers and customers. If financial institutions continue to adopt API technology, the entire industry will start to see changes in the way users handle the data, and services integrate. This will result in cost-effective and efficient banking operations. 

The concept aids both banks and third-party companies to enhance their specialties and offerings to their customers

Talking about banks and financial institutions adopting APIs, opens up a whole new segment of services of a bank or a financial institution seamlessly available to third-party companies. The concept aids both banks and third-party companies to enhance their specialties and offerings to their customers.  

In simple words, APIs in the banking and financial industry enable financial institutions to seamlessly connect with businesses and customers. With APIs, a bank can transfer information at a more convenient pace, and enlarge the number and breadth of services it offers. Keeping in mind the capabilities of APIs, they may have an extensive variety of implications on the future of the financial and banking market.

APIs: Making Banks Future Ready

Customers today have ‘ease of use’ in everything. The facilities that other industries offer to customers have prompted them to expect more from the banking industry. The customers expect ease in every service they take. In the financial industry, this interprets universal expectations for quick and simple transactions, instant access to financial statements, and paying ease.

You cannot undervalue the essential role of APIs in Open Banking initiatives. In the contemporary ecosystem of Open Banking, APIs are a way for doing business. European Banking Association (EBA)  published a report that reveals that through accepting and implementing APIs, financial institutions can extend and improve their native services and offerings.

Moreover, as fintech app development is on a constant rise, there is hardly any possibility of API in banking trends to fade in the future. Similarly, the customer demand is in abundance for financial businesses to keep striving to offer better services by integrating APIs. 

Meeting customer demands

Modern customers are technologically enthusiasts, and this is not only about millennials. Hence, with increasing expectations of their online experiences, customers seek advanced banking products delivered as swiftly as possible. 

However, if a bank or financial institution develops one-off APIs for every new function, or tries to develop every new product in-house, it will fall behind in no time. With open APIs, financial institutions can leverage functionality and products that the third parties design for them.

Enhancing Overall Customer Engagement with APIs

The APIs have enabled banks to meet the varying demands of existing customers and position themselves relevant for the banking needs of tomorrow. These APIs can also work as a distinct way to enhance the overall customer engagement and address customer needs in a safe, agile, and future-proof way. 

This engagement is crucial, mainly when upstarts and new entrants endure to disrupt the financial services industry. Moreover, new services, offerings, and devices are emerging in the market, leading to altering customer expectations and a highly competitive landscape for traditional banks. Such a competitive landscape poses challenges for traditional banks and compels them to innovate to retain and draw customers. 

How Traditional Banks Can Leverage APIs?

The traditional banking industry has always been quite slow in integrating new technologies. However, now, digital banking is becoming an emerging trend because of enhanced and altering customer needs.

By introducing their APIs to financial services firms, traditional banks can retain the existing customers by offering innovative services. This also allows banks to appeal to prospective customers seeking services powered by advanced technologies. 

Using APIs not just is an addition to the bank’s appeal, but also enables customers to engage with financial data in advanced ways. It can form extra adhesiveness and brand loyalty, which further aids customer engagement and enhances customer satisfaction.

Most of the banks permit limited and safe access to their core banking system for different third-party platforms to access data and perform banking functions. These actions include transactions, checking account information, balance query, etc. Here are a couple of case studies that showcase the power of APIs in the financial sector:

Fintech Developer Portal 

The YES Bank came up with the YES Fintech Developer portal in November 2019. Its API sandbox includes more than 50 virtual APIs and is harmonized with the YES BANK’s strategy of keeping customers at the core and also envisaging and co-creating solutions. This strategy has enabled the bank to customize its digital solutions for its clients.

YES-Fintech Developer improves the bank’s efforts in co-creating innovations with start-ups, fintech, and the developer ecosystem to boost the customer experience. In fact, Srijan helped in creating an API sandbox environment for developers, where they can experiment with their needs and get a look and feel of their applications, before building them for real.  

API Platform Strategy for Productization 

A Majority of the financial institutions in today’s context have moved into the digital world. It means that all the core systems to run the day-to-day activities of the banks are already in place.  To adopt the open banking standards and expose the core capabilities through APIs, one of the biggest challenges faced by the institutions is to identify each of the internal APIs and onboard it on an industry-standard API gateway such as APIGEE.

The impact of automation means that any new APIs available on the internal systems can be productised on the API Gateway in a matter of hours as opposed to weeks it used to take earlier. 

At Yes Bank, business users who could potentially leverage the APIs did not have visibility into the existing internal APIs. Srijan has solved this problem in a very innovative way. As a first step, we set up a scan to discover all the internal APIs and automatically onboarded them on the Apigee platform. This enabled the business users to gain control over the internal APIs. With this approach, we empowered the business teams to decide which of the API endpoints on the API gateway can be productised.

The full impact of this automation means that any new APIs available on the internal systems can be productised on the API Gateway in a matter of hours as opposed to weeks it used to take earlier. 

As you can see, the third-party platforms provide the banks with a convenient interface to execute API Banking functions, businesses and different financial service providers can conveniently merge a single platform to access manifold banking APIs.

The Future of APIs in Banking

Considering the present-day adoption and growing usage of banking APIs, the future for APIs seems promising. It reflects the API integrations between recognized businesses. This is something that the third-party infrastructure will host.

For example, banking APIs in the future can help banks in associating with e-commerce websites facilitating the procedure of online payments. Additionally, they can even integrate physical banks and stores to aid offer financing and lending alternatives at POS sites. 

APIs capabilities to design new means of engaging with suppliers, customers, transactions, and data are transformational. Financial institutions that do not invest in APIs now, will pay high opportunity prices and witness a fall in their competitive value. 

To sum up, we can now mention that we live in an “API society” and, yet, banks have just got onboard. Though the API technology is not a new face, client evolution, market disruption, and regulatory change denote that the banking world is busy discussing and preparing for an API revolution.

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