Amit Aggarwal | SVP, Product Management, FIS
April 08, 2020
Application programming interfaces (APIs) aren’t new. In fact, they’ve been around for decades in nearly all industries and touch our lives daily. Companies depend on APIs for their existence and many more have developed APIs to extend their market reach and generate new revenues. With the surge of consumer behavior demanding instant access and a more integrated user experience, APIs have only recently become mainstream in banking and represent the next wave of transformative change. From a slow start, APIs are already revolutionizing the financial world and may in due course redefine what it means to be a bank. Here we consider why.
Around the globe, APIs are synonymous with open banking initiatives, which empower bank customers to share their data with trusted third parties. Banks also use APIs internally for a range of purposes, and to expose their own services to the outside world. Most experts agree that the future of banking is open, but all banks need to consider their use of APIs carefully and strategically.
Banks are at different stages of evolution in their APIs strategies. Many are accelerating progress with solutions – like FIS Code Connect – which enable banks to build, test and deploy
innovative client solutions faster than ever before. But a successful API strategy must always align technology closely with business goals. The universal acceptance of APIs presents a unique opportunity for banks to consider how they operate, innovate and engage with customers and third parties.
Here’s a closer look at some of the opportunities that can be brought to life by giving easier, secure access to data.
Boosting efficiency. APIs empower a bank to increase interaction across a variety of platforms. Business processes can be streamlined and automated to reduce friction and deliver end-to-end processing. With modern technology, bank staff will spend less time managing transactions and are more productive. Where a bank has a legacy technology infrastructure, APIs can insulate the customer experience from the legacy technology, to accelerate software development and modernization.
Real-time processing. As banks digitalize, they must interact with customers who use a range of devices that are increasingly mobile. In this new world, real-time processing is essential, which can exert unprecedented pressure on business processes. Many banks have evolved around batch processing and are ill-suited to an instant world. APIs facilitate the exchange of data in real time or near-real time to meet increasing customer needs and to support non-disruptive upgrades, which is essential in an always-on banking environment.
Integration. As banks adopt real-time processing, there is a need to integrate internal and third-party systems. APIs simplify assimilation and allow specific services – such as loyalty – to be introduced into financial ecosystem to be consumed by customers and third parties. Banks can also harness APIs to reach new markets through integration with third-party apps and services.
In practice, APIs are about much more than data access – they can also advance the business by enabling a bank to do new things and to do things in new ways. APIs are a major catalyst of change.
Innovation. APIs are a prime driver of bank innovation. Bank products can be disaggregated, marketed individually or bundled with third-party products. In our experience, APIs are a major driver of bank transformation and modernization. Banks no longer need to build products or services from scratch but can build new services by combining those that already exist.
New business models. APIs can be marketed either directly or by third parties. They also allow banks to customize services for specific market segments, or even individual customers, creating new business models and associated revenue streams. This opens a new world of possibility, such as banking as a service (BaaS) where an end-to-end digital banking experience is available on demand over the web. A BaaS platform can integrate best-of-breed components into a new service delivered through a bank’s regulated infrastructure.
Monetization. An API-enabled financial world brings many opportunities, including new revenue models. Banks must look inwards and outwards to understand their core strengths and how to monetize these. But a successful API strategy is not just about direct revenues but indirect revenues, customer satisfaction and revenue protection.
The use of APIs challenges the traditional product-led marketing model. Bank customers are empowered to choose a range of financial services from multiple manufacturers and distributers. So, banks must decide where to invest, and which APIs to publish to deliver the best customer-centric experience.
The chapters that follow will consider these opportunities in more depth and how a bank can develop an API strategy that is closely to its business goals.