Getting the Most from Banking APIs

Category: API , Connectivity as a Service
Author: NXTsoft

The beauty of application programming interfaces (APIs) is that they enable any organization in any industry to reap the benefits of innovative technology — even if they are not tech savvy. For fintechs and financial institutions, APIs have been a game changer, if implemented properly. 

“The opportunity exists in every industry,” according to the Harvard Business Review. “Some sectors are being compelled to offer APIs due to regulation (like healthcare and banking), whereas others are prompted by industry interoperability (like telecommunications) or disruption (like retail, media, and entertainment)."

The use of APIs (pieces of code that enable different systems to communicate in a simple and machine-readable manner) in finance began more than ten years ago, and it is now becoming the most effective and important method to deliver financial services. 

In fact, a considerable amount of today’s digital financial services ecosphere revolves around fintech companies and their use of APIs, which enable banking platforms to incorporate more innovation and personalize accountholder’s experiences. 

The developer-first approach of API-based systems has also allowed a new fintech generation to flourish. The first phase of this new generation fixated on deconstructing consumer banking offerings, providing pioneering financial tech, and allowing neobanks (so-called challenger banks) to compete against slow-moving incumbents.

Why APIs?

Disruptive technology sometimes pushes fintech firms so far ahead of the banking tech development curve that it overwhelms financial institutions before they are prepared to adopt the new tech.

APIs help deliver a better way to share information, incorporate multiple systems, and personalize services, making digital financial services faster and efficient. 

Here are some API strategies already incorporated in financial services: 

  • Unbundling and renovating capabilities. By trying to package everything under one roof, financial institutions overlooked some changing customers’ needs. Niche differentiated products and services emerged to compete for basic banking tasks such as checking and savings accounts (Moven and Simple), money transfers (Venmo, PayPal, Google Wallet); and wealth management (Acorns, Robinhood). 
  • Providing banking as a service (BaaS). Many financial institutions are increasingly offering BaaS, frequently white-labeled or cobranded with fintechs, that include embedded finance (the integration of traditional financial services) such as payment processing, with other services such as a ride-share app; and open finance, the extension of open banking data-sharing to enable third party providers to access customers' complete financial data.
  • Developing a Digital Environment. APIs are building blocks for digital transformation, but determining which APIs to develop and what products and solutions requires a digital approach and an ability to move quickly, something some legacy banking establishments had a hard time doing. APIs helps connect participants such as app users and developers, and third-party service providers to bridge digital islands. That includes better lending access, onboarding instruments, or business-oriented tools and services.

Making Proper Connections

The paybacks of APIs in software development are diverse. Many financial institutions and fintechs find APIs 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.

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….”

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 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

NXTsoft recently announced Connectivity as a Service (CaaS) for financial institutions and fintechs focuses on data connectivity, analytics, management and migration, plans to accelerate the leveraging of APIs to automate and easily access data through this new connectivity service. 

NXTsoft pointed out with major core processors such as Jack Henry & Associates announcing plans to “unbundle” core system components, as they prepare for implementation of Section 1033 in the Dodd-Frank legislation, financial institutions can accelerate the speed of digital transformation without allocating staff while accomplishing connecting APIs more affordably. 

Picking the Right API

With its growing significance, developers need a place to shop for APIs — or shop them to others. API portals, offering either home-produced or a template-based tools, was the primary source of APIs for a quite a few years. Portals have gradually given way to marketplaces. Whereas API portals usually offer positioning for a single API provider while letting developers integrate and securely onboard with the API source; the marketplace allows developers a one-stop shop for everything from integrated onboarding to features such as security-issue tracing. In addition, a marketplace aggregates a number of API providers into a holistic view and typically adds search capabilities so developers can browse the interface inventory.

The 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 from partnerships with carefully handpicked allies.

The marketplace increases exposure for API developers of all sizes, especially those seeking a bigger fintech presence. They can also market APIs based on categories and how they interact with consumers, third-parties and applications. Choosing an API will consequently become more a case of matching features of the API as a product with overall need, rather than picking an API based on just the technology implementation. 

A trustworthy marketplace should fundamentally feature a straightforward interface with groupings and a search mechanism. It should also deliver all essential material for the API such as documentation and sample code. However, it is also vital that an API marketplace contain a rigorous security element because of disconcerting anxieties associated with cloud safety and an increase in API-based cyberattacks.

NXTsoft’s OmniConnect Platform is a premier open banking marketplace for all API needs. OmniConnect utilizes cutting-edge cloud technology to connect fintech solutions to financial institutions, ensuring that its clients have the most secure and reliable integration environment in the industry. It helps connect everything from digital banking to item processing and financial systems. 

Related Reading:

Financial Institution API Strategies | NXTsoft Fintech-Enabled APIs

May 3, 2022
Share this post on social media