Application programming interfaces (APIs) now serve as the critical device linking innovative technologies with fintech and core banking systems. But such an evolution to an API-banking environment requires a strategy for each organization that embraces this connected ecosphere of independent enabling apps and processes.
APIs power today’s digital functionality by allowing applications to access data and link with peripheral software components, operating systems, or microservices. They allow developers to generate a request for specific information such as providing the geolocation in mapping apps, a communication tool in customer service, and login authentication for banking apps, among many other customer-facing interactions.
An API-led connectivity method changes the way IT operates and promotes decentralized access to data and capabilities, while not compromising regulation and security, if done right.
The Benefits of Getting Connected
The paybacks of APIs in software development are diverse. Many financial institutions and fintechs find they help control the swing from rigid on-premises software to the cloud and a collection of applications. Using APIs, financial institutions can retrieve and combine data assets and functionality from different systems.
Financial services took an arm’s length approach to APIs for years until an upsurge of fintechs and digital-only banks, empowered by agile microservices architectures, started appearing as competitors.
The API economy also represented a new revenue stream that emerged between customers, locations, apps, data streams, and processes. In 2016, Gartner said, “The API economy is an enabler for turning a business or organization into a platform. Platforms multiply value creation because they enable business ecosystems inside and outside of the enterprise to consummate matches among users and facilitate the creation and/or exchange of goods, services and social currency so that all participants are able to capture value.”
Traditional financial institutions typically consider two options for API monetization:
Banking as a platform. Allows the enhancement of customer product portfolios via partners’ financial APIs; and access to new product verticals, or re-engagement with customers to upsells and cross-sells. The BaaS platform helps ensure safe communication of data between the traditional bank and a business/fintech company. This level is also known as the ‘middleware’ or ‘banking as a service’ layer.
Banking as a Service (BaaS). The financial institution distributes some of its core financial services as APIs for others to use. Payments, loan underwriting, savings, and credit products are several things banks and credit unions can offer via an API. Finastra’s “Financial Services State of the Nation Survey 2021,” found 81% of financial institutions see BAAS as a means to grow business, enhance their distribution channels, shorten time to market and streamline operations.
API Led Connectivity
API-led connectivity links data to applications via directed APIs that perform a precise task such as retrieving and uniting information from core systems, or supplying a positive interaction experience for the consumer.
This approach allows developers to use the same module in diverse applications, which cuts the timetable to market and increases productivity.
A trio of APIs recognized as providing key roles central to API led connectivity:
- System APIs deliver a way to shield the customers’ information from modifications to the central or core systems. Financial institutions can exchange an existing scheme with a different or new one without changing the API externally.
- Process APIs generate or shape data according to business requirements. These provide logic and planning, but do not communicate with end systems directly but instead connect to system APIs to get its data.
- Experience API (or xAPI) provide the specification for learning technology that permits the collection of data from a variety of personal encounters. This API captures data in a consistent format about a person or group's activities from many technologies.
This API-led connectivity approach to integration increases speed to market, agility, and productivity while removing front-end developers from the methodical effort that comes with extracting specific data from source systems. Approaching connectivity holistically allows for greater operational insight.
API Marketplaces Help Make Connections
A recent Forbes article suggested, “No longer a sub-genre and now an industry in and of itself, API management is creating a whole new thread of connectivity-centric technology in the modern IT stack….”
With their growing significance, developers need a place to shop for APIs — or shop them to others. API portals, the primary source of APIs for a number of years, have gradually given way to marketplaces. API portals usually offered positioning for a single API provider, while letting developers integrate and securely onboard with the API source. The API marketplace allows developers a one-stop shop for everything from integrated onboarding to features such as security issue tracing.
Typically, an API marketplace comprises several components, including an API manager, gateway, security and developer areas. It collects, categorizes and presents the published APIs. A significant marketplace goal is to use and recycle APIs. Therefore, a marketplace usually ensures APIs are searchable and have the correct categorization connected to them.
The marketplace model lets financial institutions continue to provide and develop their central services, but also provides an opportunity to fill gaps from partnerships with carefully handpicked allies.
This approach also levels the playing field for API providers as the marketplace increases exposure for API developers of all sizes, especially those seeking a bigger fintech presence. For some providers, deploying to a marketplace can mean replacing their portals completely. They can also market APIs based on types and how they interact with consumers, third parties and applications. NXTsoft’s OmniConnect Platform, which utilizes cutting-edge cloud technology to securely connect fintech solutions to financial institutions, ensures that its clients have safe and reliable integration, is an open banking marketplace for all API needs. NXTsoft has connectors built for as many as 40 different banking core accounting systems including systems from Fiserv, Jack Henry and FIS, with many of them requiring connectivity to multi-core versions.
NXTsoft delivers connectivity to over 700 financial institutions with 2,000 connections in place. The company provides links to 44 active partners through the use of its open API platform. They have connected with financial services systems, customer relationship management (CRM) platforms and other banking systems. Its API platform incorporates five standard use cases that allow for quick integration for partners.