Financial institutions face increasing pressure to drive operational costs down while improving service to account-holders. Recognizing they cannot face these challenges alone, many are choosing to partner with fintechs that can integrate best-of-breed fintech solutions using application programming interfaces (APIs).
Finastra research shows that 90% of financial institutions are already pursuing new fintech partnerships to improve their offerings. Three-fourths of those financial institutions prefer fintechs that can provide black and white revenue gains stemming from streamlined processes, leading directly to increased wallet share and retention.
Fintech integration also comes with challenges, according to the Finastra research, such as interoperability constraints, legacy system upgrades, and automating manual processes. These are identified as the main challenges FI teams face when integrating fintechs into their product offerings, highlighting the need for flexible software solutions powered by open APIs.
Transforming Legacy Systems
Some industry experts have suggested financial institutions should prioritize around modernization of core banking to move the industry forward. This entails integrating best-of-breed technology with open APIs to automate processes that transform both customer and staff experiences.
For example, using a combination of robotic process automation (RPA), machine learning (ML), and artificial intelligence (AI), financial institutions can streamline processes, thereby freeing the workforce to focus on tasks that drive a bigger impact for the customer and business. However, institutions must not digitize without considering the human interaction that will be replaced, as customers prefer a hybrid approach.
Tearsheet’s The Big Bank Theory Conference found selected tech strategies that work such as adapting current and legacy infrastructures and processes to new products, demands and regulations; focusing on modularization, untangling frameworks using APIs; and developing tech agility to roll out products quickly by embracing independent research and protracted testing.
According to global research firm Omdia’s IT Enterprise Insights Survey, seven in 10 IT decision-makers in retail banking plan to increase spending in 2023. This involves moving to the cloud and composable banking — which leverages best-of-breed solutions to manage front- and back-office development — to enable digital transformation more effectively. Additional steps include developing core banking around real-time, API-first, and cloud-native solutions that can offer flexibility and scalability benefits.
Investment should also produce a high level of automation and use of analytics. Personalized and consistent cross-channel customer experience and a comprehensive view of the customer across business lines are the top IT projects for omnichannel banking strategy, according to Omdia’s survey.
Financial Institutions Trend Toward Fintech and APIs
Tech sustainability achieves importance through definitive approaches by financial institutions. Some financial institutions report difficulty in understanding the transformative technologies also impacting existing rules; and what tools can help them stay compliant with evolving regulations.
For financial institutions, achieving optimum branch automation and digital transformation centers around a form of “co-opetition” — collaborating with fintech competitors to change the banking tech ecosystem.
Credit unions and community and regional banks need fintech partners because many lack their own technological staff and resources. Besides, many financial institutions recognize their customers are familiar with—and in many cases are already using—innovative best-of-breed tools that deliver better digital experiences. So, many financial institutions ask, “How do we incorporate them?”
These financial institutions must decide how to better engage their accountholders, whether through a partnership acquisition, a simple agreement, internal development, or access through the cloud. It is a matter of how these financial institutions get on board with these fintechs now.
API-Delivered Best-of-Breed Financial Services
Financial institutions increasingly view APIs as adaptable tools that can enable best-of-breed value. APIs are now the de facto and most important method to deliver financial services. The developer-first approach of API-based systems has allowed a new fintech generation to thrive.
The API marketplace model lets financial institutions continue to provide and develop their core services, but also provides an opportunity for them to fill gaps within the product and service offerings they generate with selected allies.
NXTsoft makes it easy to fold in APIs into the financial institution’s tech environment:
- NXTsoft’s OmniConnect Platform utilizes cutting-edge cloud technology to securely connect fintech solutions to financial institutions, ensuring that its clients have safe and reliable integration, and 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’s Connectivity as a Service (CaaS) maps, implements, maintains, secures and services connectivity between a financial institution and the multiple ancillary components it wants to incorporate. NXTsoft works with an institution’s selected fintech vendors to ensure that systems transfer data exactly as they should, removing this pain point from the financial institution.