Amit Aggarawal | SVP, Product Management, FIS
June 08, 2020
In recent years tech giants like Google, Amazon, Uber and Facebook have redefined what’s possible with the ability to make things happen instantly, often in one central spot. The financial world must increasingly mirror a real world that never sleeps and is always on the move. But many banks have grown up around batch-based systems so giving real-time access to data and functionality can be a major challenge. In this paper we consider how APIs can enable real-time connectivity.
As the world races towards instant payments, bank systems must open up to participate in an ecosystem that’s increasingly mobile and real time. But many bank processes are designed around physical products and multiple channels. APIs can help a bank adapt to an ever-changing world by connecting all touchpoints of a transaction from the customer to the back office to streamline and unify processing. This can empower a bank to improve the customer experience and jumpstart innovation.
Opening up the banking platform. Bank customers increasingly demand access to their own financial data, and they may also wish to view data across multiple accounts or share it with third parties. Many of the open banking initiatives underway around the world seek to ease and democratize access to bank functionality and data. APIs can do this without a major investment in time or technology. With the right API strategy, a bank can simplify real-time access while preserving its investment in technology assets.
Although many open banking initiatives have origins in legislation - such as the Payments Services Directive 2 (PSD2) in Europe - banks increasingly regard open banking as a unique opportunity to become more customer centric. APIs make this technically feasible and cost effective. For example, customers can view payments data and pay bills in a single location online or through a mobile app. In an open banking relationship, there are always three parties (bank, bank customer and third party) all of whom benefit from the relationship. So, there are sound commercial incentives to pursue open banking, which is becoming mainstream in global locations.
Banking as a service (BaaS). Simplified access to bank functionality also opens a new world of possibility for banks to provide third parties with access to core systems and functionality which can be integrated into third-party products and applications. From a bank’s perspective, BaaS allows third-party software providers to access bank functionality through APIs, so it is innovative from both a technical and business viewpoint.
BaaS also empowers third parties to offer bank products – such as deposits or loans – without having to become regulated. Banks can generate new revenue streams beyond their traditional customer base through a combination of setup fees, recurring fees or revenue sharing agreements.
As well as generating new revenues, BaaS can improve the customer experience by allowing banks to integrate third parties’ products and functionality into the banking experience. Harnessing APIs, banks can provide customers with an end-to-end experience without the need to build new products from scratch.
Improved multichannel banking. In a response to rising customer expectations, many banks have added new products and channels at a frenetic pace. While successful, these initiatives have produced some processing challenges because many bank platforms are designed as standalone systems with disparate architectures and inconsistent functionality.
From a customer perspective inconsistency between channels can cause confusion and impair the banking experience. APIs can synchronize banking channels in real time to offer a consistent customer experience without a major technology renewal. Customers can begin a banking journey on one channel and continue on another regardless of time or location.
Boosting fraud management. Although the move to real-time processing is mainly driven by customer benefits, real-time access can also drive internal advantages. Many internal systems, such as fraud prevention and detection are rules based and work on historical data. But, with the right APIs, data can be extracted and analyzed in real time to stop fraud before it happens.
By using real-time data, a bank can adopt the latest technology (such as artificial intelligence and machine learning) and techniques to stay one step ahead of the enemy. But in practice, building a real-time picture of the fraud landscape involves collating data from many disparate sources. APIs offer a practical solution by enabling a truly integrated real-time picture of fraud management across all systems, channels and locations. Without this, fraud may go undetected for days, months, or forever.
APIs offer a roadmap to modernization through legacy enablement rather than a major technology renewal. Although much of the commentary around real-time has focused on the customer experience, real-time connectivity also offers many internal benefits – it can boost efficiency and drive down costs.
At a time when banks are looking to reduce costs and increase efficiency, APIs perform a critical role in helping banks extend the scope and life of critical technology assets, in which they have invested heavily over many years. Banks wishing to improve real-time connectivity should ask their technology partners how APIs can help them accelerate progress while preserving existing investments in technology assets. In the chapters that follow we will consider how APIs can deliver a range of business benefits.