APIs are a set of codes and protocols which determine how each software component should interact. Essentially, they allow for different applications to fluently communicate with each other. These interfaces are needed to establish the functionality of banking as a service (BaaS), which is a key component of open banking.
APIs allow for the union of information and data among organizations without demanding that they merge their individual operating systems. With the opening of APIs, banks can easily connect other API s on the market to expand their offer through the introduction of fintech solutions as “plug-and-play” methods.
By enabling data and systems in silos to communicate with each other, APIs open and develop communication channels between financial institutions, without the need of reviewing their existing infrastructure. In this way, they increase their capacity of developing products in a fast and agile manner, more adapted and personalized for their users, in the middle of the era of digital transformation. Besides, they allow for the implementation of new and advanced financial products and services in a speedy manner.
These capacities collaborate with the customer loyalty strategies of banks, in a moment where traditional entities are being threatened by new fintech players.
For example, APIs allow to offer new proposals of added value, that go from improved payment options (such as digital wallets), to scam alerts in portable devices.
Organizations are profiting from the power of APIs “to unblock a great number of opportunities, from personalized financial services to whole banking ecosystems that are state of the art in technology integration and product development”.
How is this achieved in practice? APIs enable the organizations to obtain third party specific services and characteristics. In this way, when adopting a new API centred approach, financial institutions no longer have to develop each new product internally: open APIs can profit from functionality and products third parties design for them. In doing so, they become more adaptable to specific requirements from their clients, as they can join new products from existing services and then deliver rapidly these new services to the market.
Open banking is the system through which banks allow third parties to access the financial information needed to develop new services and applications, at the time they provide transparency to clients throughout the world. In this open banking scene, there is an ever growing collaboration between financial institutions to facilitate access to valuable shared banking data from the clients and profit from this information to offer them a better experience in general.
Instead of competing against fintech or third party organizations, today traditional banks can profit from open banking to ally with them while they stand out in an industry that is permanently evolving. This open banking scenario is redefining the panorama of financial services in many ways, especially helping companies to increase income through new channels, enlarge their services offers and improve client participation.
Everything suggests that API capacities to create new forms of interaction with customers, suppliers, data and transactions will be transforming. The method of discovering products and services as APIs will allow for banks to find new opportunities, while at the same time will enable them to evolve towards a more customer centred architecture.
This is to say, in the contemporary open banking ecosystem, APIs are a way of making business. When accepting and implementing APIs, financial institutions can widen and improve their native services and offers. This model will help them develop the agility they need to associate with an ample ecosystem of new players and to create new offers in a context of open innovation. With this, they will be able to satisfy new and challenging client demands.
Is your financial entity evolving towards the concept of open banking?