Why your financial institution should care about APIs
Due to shifting technology uses, Application Programming Interfaces (APIs) have found early client utility in consumer financial services for mobile banking applications. Forward thinking corporate banking businesses are now finding key service opportunities in a broader range of use cases as institutions continue to formulate and build on their digital strategies. Financial institutions can utilize or deploy APIs and integrate into their portfolio as another tool for cardholders.
An API allows two different software solutions within and between businesses to communicate together cooperatively. The cooperation may be simple, such as allowing one application to receive data from another to validate an account holder or balance, or complex as enabling applications to communicate and perform intricate business processes. Private APIs are developed and used internally for low cost integration within the organization. Partner APIs are exposed to clients for access to new services and channels. And Open APIs make business data available to third parties that don’t necessarily have a formal relationship with the financial institution.
There are five external API business cases used across the financial services industry. They again range from simplex to complex, with rising costs as they get more complicated. A Simplified Open Banking solution is utilized by a large range of Fintech companies. A New business Service such as a Web Portal is used to bring some aspect of an internal operation to the larger market. This would likely use a cloud API platform.
The benefits of having an Open API are finally being realized and utilized by financial institutions around the world. Due to regulatory compliance (which isn’t a concern in the US yet), financial institutions in the EU have to face the regulatory requirements of the Payments Services Directive (PSD2). This requires that financial institutions and anyone that receives electronic payments open customer information up to third parties, for which open APIs have become the ideal solutions.
Millennials aren’t the only tech-savvy generation and according to Statista , Generation X digital banking users will reach 75% by 2019. With Open APIs, banks can leverage functionality and products created by third parties or allow the same Fintechs to fill gaps in their offerings, such as person to person money transferring mobile platforms.
In a recent study , it was reported that consumers spend up to 5 hours a day on their phone, which leads the average consumer to quickly recognize an efficient mobile experience. They have come to expect an intuitive platform and will prioritize financial institutions that offer a quality mobile-friendly experience. With open APIs, financial institutions can create an omnichannel experience, pulling on internal and experience resources to build a full-service platform.
APIs have been used in the financial industry, but have mostly been internally facing to aid with integration and efficiency. Now, due to Fintech proliferation and client demand, APIs will become the norm. Financial institutions now have the key to competing with Fintechs, as they continue to provide the personal service that their customers and members have come to know.
Have questions? Contact us today at 866.622.2201.