Open APIs in banking are here to stay!
By Souna Uthappa and Naveen PV
Open banking has been ground for some time now and is slowly getting adopted into mainstream banking. Digital disruption and the rise of fintechs have played a major role in propelling the momentum of open application programming interfaces (APIs) in the financial services industry. Financial institutions (FIs) have understood that collaborating with other players in the sector will strengthen the overall ecosystem and is in the best interest of customers. Open APIs are helping FIs to innovate and bring new products and services to market faster with the help of external developers.
Many of the large US and European banks and FIs have actively started experimenting with open APIs by making parts of their proprietary software available to outside developers. Most of the banks, which have boarded the open API band wagon are seeing it as an opportunity to securely and rapidly enhance, broaden, and differentiate their service offerings. They typically deploy and operate the API stack behind its firewall ensuring a level of security, which is a key area of concern for all.
The benefits of open APIs in banking are manifold which include innovation, greater collaboration, efficiency, speed, cost reduction, wider reach, competition, value creation, compliance, better customer choices and services, and so on. All these are beneficial to the banks, customers, and the economy as a whole. Open APIs also act as a trigger for fintech innovation by giving the much needed opportunity for upcoming technology startups to work on proprietary software shared by leading banks and financial institutions. Open APIs are giving more choice and utility for banking customers via useful applications developed by the external developers, which is in turn creating new revenue streams for banks and FIs. Open API projects also work toward creating standardized APIs for the industry benefiting all the concerned parties, including financial institutions, application development community, and ultimately the banking customers.
Banks like BBVA Compass, Citi, Saxo Bank, Fidor Bank, and Starling have been embracing open APIs for the advantages it offers. For instance, Citi bank launched the global API developer hub, which helps it to connect with the developers enabling them to present new solutions for the customers at a faster pace. Saxo bank through its open API allows its customers, partners, and external developers to access its trading infrastructure that helps them with better trading experience for the customers and also helps in identifying new revenue generating areas. Starling bank is coming up with the marketplace platform, wherein the products and services offered by other providers can merge with the bank's interfaces, thereby providing an integrated user experience to its customers. Ulster Bank has been conducting hackathons, wherein anyone can create new apps and services and explore their test APIs.
Increasing competition and customer expectations are pushing banks to differentiate their products and services more than ever. Hence, open APIs are here to stay, and are bound to find more takers in the coming days as it is a win-win situation for all the parties involved.