The global banking services landscape has realized the significance of going digital. Because the challenge today is not just the rising cost pressure, but also the consisting shifting loyalty of clientele due to the lack of customer-centric experiences provided by banking institutions. Such customer responses have made it imperative for banking and financial institutions to deploy innovative technologies as they are still the best card on their deck to play when it comes to higher customer retention and a competitive edge. Owing to the spiking popularity of digital banking, the total number of global online banking users will exceed 3.6 billion by 2024. Keeping that in mind, the API market is expected to grow at 24.4% reaching a value of a whopping USD $43 billion by 2026.
The tailored digital financial technologies have enabled banking and financial institutions to closely identify and resolve the grey areas in their digital customer experiences. Among the said technologies, API solutions help enhance the customer’s digital banking experience through its integration with multiple applications.
Chime – a neobank, integrates its applications with banks like The Bancorp Bank and the Stride Bank, which results in a fast-paced integration between the bank and the consumer-facing app. This integration ultimately offers a real-time connection. Similarly, the Bank of America Merill Lynch launched its API Gateway which enables its clients to take advantage of direct API connections through ERPs and Treasury Management Systems (TMS) along with third-party involvements. Before we dive deeper into the competitive scope of APIs in the digital banking industry, let’s understand it a little bit more.
Application Programming Interfaces (APIs) are software applications that connect other applications with the organization’s pre-existing tech infrastructure. In the case of BFSIs, APIs offer a seamless customer experience and tackle banking issues such as:
· Overdue receivables
· Non-compliant remittances
· Delineating internal roles and responsibilities
· Adjustment or cancellation of payments, and more functions like these.
The Competitive Scope of API in Fostering Digitally Adept Banking
The UK Government’s initiative of open banking API in 2018 has caused a widespread adoption of APIs in the financial sector. The open banking API concept is the reason that led to the establishment of innovative fintech startups following the mainstream usage of open banking. The fintech startups deem it quite convenient to deploy APIs to direct third-party service providers.
The APIs contain codes that determine the communication protocols among banking companies with the end-goal of simplifying the banking process. These APIs then connect the developers with the payment systems that display the billing details on the BI’s website. All in all, APIs are employed to
connect multiple software applications. Hence, APIs act as key players of one of the elements of open banking – banking as a service (BaaS).
With the prioritization of APIs from banks and credit unions, there has been an increase in the proportions that have developed or invested in them from 35% in 2019 to 47% in 2021. The number is expected to increase by 25% further in 2022. Though no matter how agile the banks become, the challenges find their way. But APIs make it easier for banks to thwart them. Let’s have a look at some of the challenges banks face and how APIs help BIs counter them.
The disparate systems used by the banks previously along with the un-integrated third-party applications caused a problem for the banking companies in gathering relevant data sets. APIs enable seamless data communication to ensure that the data is being utilized to its optimum level while elevating the value of your core banking systems as well as third-party applications.
Furthering to the previous point of barrier-free data sharing, APIs make sure that the relevant data is extracted from the silos and brought into meaningful use. The enhanced accessibility drives optimized data intelligence resulting in a positively impacted bottom line.
Customers’ data is highly sensitive, and banks strive to safeguard that. Hence, the banks have multiple authentication and security protocols through API integrations to ensure it’s not compromised at all costs. This provides customers with greater control over their data. Subsequently, the customers can also demand their banks share their banking or desired information with a third party. With the help of APIs, customers can also perform and manage their banking activities through a mobile or web application across multiple devices, reducing the possibility of customers going through the hassle of visiting a bank. Ultimately, all of this contributes to a positive user experience.
Surely, open banking solutions have revolutionized the market, helping banking institutions scale their growth. But it has also increased the influx of new entrants with innovative solutions leveraging APIs – the fintech startups. The fintech startups take advantage of APIs to curate customized financial services for customers with better user experiences, which influences customers to resort to fintech startups rather than banking institutions. Henceforth, the banks are facing quite a challenge outperforming the fintech startup sector.
The banks can play the fintech game as well by completely digitalizing their banking services, A pertinent example of such a move is Standard Chartered (SC). SC has recently started shifting all its banking services from branch banking to digital banking platforms where the customers can not just perform transactions, but they can also open accounts, file credit applications, etc. This strategy does not just
help SC save costs but also poses a challenge to the fintech startups that capitalize on a significant factor: branchless banking.
Various tech solutions come and go. But the magnitude of API usage in fintech startups indicates a huge demand for APIs in the market, canceling the possibility of APIs being outdated. The short and rather predictable lifecycle of fintech solutions makes banking institutions reluctant to adopt them. The nature of APIs and their lifecycle suggests otherwise. The API model was brought in to be dynamic since it focuses more on inter-system and application integration.
Be it the user or the financial institution, security is the main concern for all the parties involved in open banking. Open banking security protocols are stringent as the API endpoints are built by the banks themselves upon the extensive testing process by both the banking institutions as well as other authorized and regulatory bodies.
o Convenient Financial Management
o A Hassle-Free UX
o Secure Data Centers
o Tailored Banking Services
o Real-Time Transactional Access
o Efficient Cost and Resource Management
The open banking API has transformed the banking and financial vertical. It has expanded the horizon of opportunities by helping them tap into greater mass markets, through third-party integrations and user-centric experience delivery. By gauging the rapid adoption of APIs on a massive scale, the future of APIs seems optimistic. On the other hand, with API integration, the future of digital banking looks even more promising. If you intend to learn more about open banking APIs, contact us at www.techvista.com or visit us on LinkedIn for more.