The onetime FinTech-versus-bank battle shows major signs of easing from competition to cooperation. According to the 2017 World Retail Banking Report, 91 percent of banks and 75 percent of fintechs expect to partner with one another in the future. APIs (application programming interfaces) are a key enabler in this evolution. Once a term reserved for technical experts, APIs are gradually becoming part of our everyday banking language as they continue to offer more capabilities and opportunities for fintech companies and financial institutions to better serve their customers.
The ABCs of APIs
Knowing what API stands for isn’t the same thing as knowing how it works. Here is an excellent explanation, by way of example, from Petr Gazarov at freeCodeCamp:
“Your small business’s website has a form used to sign clients up for appointments. You want to give your clients the ability to automatically create a Google calendar event with the details for that appointment. [With an API], the idea is to have your website’s server talk directly to Google’s server with a request to create an event with the given details. Your server would then receive Google’s response, process it and send back relevant information to the browser, such as a confirmation message to the user.”
Simply put, APIs act as the glue to connect multiple systems to build one efficient platform. You can also think of the ride sharing application Lyft, which uses APIs to synchronize maps, payments and texting in one application. APIs are highly useful for financial institutions internally. But APIs are just as important, if not more so, from an external standpoint. Most institutions with a commitment to customer focus—and that want to create a superior customer experience—can leverage APIs to generate frictionless, simple experiences for their customers. And taken together, APIs and fintech partnerships are disrupting and changing the traditional banking environment with open banking.
Open banking: Better borrower experiences
Open banking allows for banks to share data with third-party companies or applications securely, and in real time, through APIs. Banks have traditionally acted as gatekeepers of customer financial data, facilitating most exchanges of money. While the rapid rise of fintech companies worried the banking industry, financial institutions are now embracing fintech to foster fast innovation, accurate decision making and increased quality.
From the customer perspective, open banking creates the ability to easily share data with third parties; compare, analyze and manage accounts more effectively; and ultimately make more sound financial decisions. Most bankers see personal loans as the most at-risk product to move to a fintech company. But with the use of open banking, banks can greatly enhance and expedite borrower experience. Traditional banking is not typically known for its speed, but with the emergence of open banking and APIs, financial institutions can create a more cost-effective solution while vastly increasing the speed to market.
Putting it all together: API equals TPI (third-party integration)
As financial services organizations continue to embrace APIs and open banking, they’ll be better equipped to partner with technology companies in an easy-to-grasp fashion. The “language” of open banking technology optimizes third-party integration to create greater accessibility to various partners and features. From comparing banking options to presenting new product offerings, open banking bolsters the services that organizations can provide to their customers.
The financial space has changed significantly in the past few decades, thanks to the emergence of new technologies and increased competition in the marketplace. Based on a survey by PwC, 63 percent of bankers see the rise of fintech as a way to expand products and services. Expect financial institutions to start making key changes to keep their customers satisfied and provide enticing capabilities. And if you like, put it this way: As fintechs work with banks to bring their work with APIs and open banking into focus, customer focus becomes sharper, clearer and open to exciting possibilities.
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Kylee Wooten is a media relations and research associate at Sageworks and is based in Raleigh-Durham, North Carolina.
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