APIs are a hot topic in banking. Much has been said about how APIs facilitate a better customer experience and help generate new revenues. But APIs also have many applications within a bank, boosting efficiency and providing legacy systems enablement. In this article, we consider how APIs can help a bank honor its technology investments and participate in an open world.
The technology architecture within many banks has evolved over years and decades. Banks have invested heavily and consistently to deliver new products across multiple channels and to increase customer engagement. However, many of these systems could now be considered legacy: They may be batch based, often difficult to change and expensive to maintain. For some banks, the technology that built success may eventually become an impediment to progress. Here we consider how APIs can accelerate legacy enablement and make a bank more agile and responsive to change.
Reduce redundancy, errors, and costs.
Many systems deployed at banks today still are not integrated to each other. This results in having to re-enter the data from one system to another, resulting in, best case, excessive effort and cost, and worst case, errors and compliance issues. Solutions that are API enabled and solutions that consume APIs eliminate the need for manual entries and drive much more efficiencies for the bank.
Stay ahead of the competition.
Many banks face increased competition from startups that are unencumbered by legacy technology and business processes. Offering a tech-first approach, these digital - or “neobanks” - are constantly raising the bar in terms of processing efficiency and business agility. Banks that have technology stacks without APIs face the prospect of increasing risk and costs: Innovation can be difficult and project time to launch longer. This can impair a bank’s ability to remain competitive. By adopting an API strategy, a bank’s set of solutions can become more modular. Like Lego blocks, these solutions can then be re-assembled much more efficiently, unleashing the power of infinite combinations and fostering the ability to drive rapid innovation.
All banks are coming under increasing pressure to control soaring compliance and regulatory costs. Among many demands, they must increase the number of checks to prevent money laundering while providing more data to regulators for stress tests. At the same time, they face massive fines for failure to comply. To succeed in this heavily regulated environment, banks must leverage technology to implement efficient compliance. In a compliance world that increasingly calls for fast, accurate data, APIs are critical to compliance efficiency. Through APIs, data can be sourced from all over the bank to be standardized, combined and provided to regulators. As financial regulation grows in volume and complexity, RegTech platform will play a critical role in maintaining compliance.
Forget channels, remember customers.
Banking channels are an accident of history. In the beginning there was just the branch network, then ATMs were added, followed by call center, online and mobile. From a customer perspective, channels are largely irrelevant – they want banking their way so they can begin a banking journey on one channel, then continue on another. But from a bank perspective, supporting a full omnichannel banking experience can be a costly technical challenge - connecting legacy technology stacks to smartphones and tablets is not easy. More to the point, they need to do this at scale, and across all communication channels, inclusive of call center and digital chat. APIs let developers to quickly get data and conduct activity across several legacy systems, resulting in a more integrated user journey for the customer.
Boosting efficiency, advancing modernization
APIs offer a practical bridge between traditional banking systems and the newer technologies. As we have seen by leveraging APIs for data and functionality stored across multiple existing systems, new systems drive consolidated reporting, faster decisioning, and the ability to drive stronger customer interactions. In this way, efficiency can be boosted: Banks can leverage their investments made in existing systems while continuing a technology renewal. Although many banks are strategically committed to modernization, APIs offer a low-risk path through legacy enablement.
While the spotlight has focused on how APIs allow banks to do new things, in reality APIs also empower a bank to do things in new ways; existing bank systems can cross pollinate with the new and share the same financial ecosystem. Banks wishing to open up their systems should ask their technology partners how to modernize while honoring their existing investments.
In the blogs that follow, we will consider more ways that a bank can develop an API strategy that is closely aligned to business its goals.