APIs in the Banking Industry

Category: Data Connectivity
Author: NXTsoft

From improving digital banking to facilitating same day ACH payments, application program interfaces (APIs) are impacting payment and banking systems at a rapid degree. With application programming interfaces, financial institutions are not only growing their lending portfolios, but revamping the financial industry customer experience through its ease of use platform. But what exactly is an API and how can your financial institution prepare for the digital transformation?

What is a Bank API?

APIs allow banks and credit unions of all sizes to build software utilizing a group of tools or protocol requests. Data is exchanged by the requests made by the API, which allows financial institutions to partner freely with third-party Fintech vendors. The direct communication between disparate systems and allowing them to send data real time while remaining continuous has empowered API usage in banks and credit unions. Integrated APIs provide freedom by allowing companies to create new products and provide updated services to their consumers. The capability to transform your banking platform and offer customers cost-effective products are unparalleled through APIs. Whether it is making payments or applying for a loan through an app, financial institutions should be prepared for the digital shift many of their counterparts have already made or are preparing to. 

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Transitioning to Digital Banking

As the heavy demand for APIs in the banking industry grows, the implementation for Fintech applications is displayed on a more gradual level. Open banking is supported by secure data transfer enabled by APIs. Developers within these institutions can build a platform for the consumer that will in return provide consumers with better control of their finances.  As online and mobile channels become the norm, banking is moving from traditional brick and mortar to a tech-savvy, online induced experience. 

James M. Deitch, author of Digitally Transforming the Mortgage Banking Industry stated, “Working hand in hand with consumer demand for online access is that the new generation of borrowers—the Millennials—are extremely tech savvy, plus they have high expectations. These expectations are not just about being able to fill out a loan application online but involve something that doesn’t necessarily come naturally to banking—the instant answer.”

This statement details the impact financial institutions will have to make when rethinking their way of engaging the consumer within this generation. Financial institutions must become a victor when orchestrating a vision for open banking, a vision that utilizes APIs as a customer product and not a technical term. When building the digital banking platform, there must be a push to understand the needs of the customer and how this will directly impact your institutions framework around the use of APIs.  

June 17, 2020
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