How APIs Enable Differentiation for Financial Institutions

Category: API , Digital Banking , Data Connectivity
Author: NXTsoft

To remain competitive, it is important for financial institutions to distinguish themselves from each other by accelerating their digital transformation with innovative technologies. Open banking application programming interfaces (APIs) allow third-party developers to build applications that interact with banking customer data and systems to create new opportunities for innovation and differentiation.

Financial institutions that are ready to renovate and innovate set out to overcome data silos, boost operational efficiency, and create personalized customer experiences. This requires a shift away from closed legacy systems that constrict their capacity to transform to an open and digitally based core system. Unfettered, and with the help of open APIs, they can create integrated and consumer-centric banking experiences aimed at winning the competition for market share and increased profitability.

The statistics support the shift: Statista revealed the number of open banking users worldwide is in the midst of a growth spurt of nearly 50% annually between 2020 and 2024. Juniper Research estimated the global value of open banking payments to exceed $116 billion by 2026, up from $4 billion in 2021. According to Finastra, nearly 50% of financial institutions (48%) considered open banking a ‘must have’ in 2022, up from 38% in 2021. Perhaps more importantly for the banking industry, 85% of those surveyed by Finastra maintain that open banking is fostering greater collaboration across financial services.

APIs: Open Up a Winning Strategy

Open banking, reinforced by APIs, is a win-win-win for financial institutions, consumers and developers.

For banks and credit unions, open banking APIs present a way to modernize legacy systems and make them nimbler technologically. They also provide a way for financial institutions to partner with fintech startups and other innovative companies to create new products and services.

For consumers, open banking APIs offer an extensive assortment of features and services. They can permit patrons to view their account balances and transaction history from within the app; empower clients to make payments or transfer money between accounts; and deliver budgeting tools, spending trackers, and financial goal setters.

For developers, these API possibilities create trust with financial institutions and businesses; and open up chances to produce new banking applications.

The Right API Fit

These newfound opportunities afford financial institutions the means to coordinate strategic partnerships with relevant fintechs and software providers. Banks and credit unions adopting such an approach can visualize fintechs less as competitors and more as part of a collaborative environment to accelerate innovation and add a personal touch to customers.

Many financial institutions will continue to focus mainly on operational efficiency and cost control by automating labor-intensive and paper-driven processes. However, the financial services market is also ready to act on real-time data as a way for driving value and transforming customer experiences.

Innovative tech suppliers can provide everything from know your customer (KYC) services to integrated booking, as well as load services, basic marketing, and portfolio management functionalities. It can also improve AI-driven decision-making and the capability to generate more personalized experiences from interactive products and services like chatbots and self-service portals.

To meet customer demands, many financial institutions also seek to update their payments data infrastructure to create personalized, secure, and real-time payment experiences — all while protecting consumers from fraud.

Don't Be a Dinosaur

API Marketplaces

API portals provide a connection between providers and consumers. They allow providers to expose and publicize their APIs, educate developer communities, share API documentation, and receive feedback and bug problems.

Some major banks, such as HSBC, Barclays, Bank of Scotland, and Wells Fargo, have started offering open banking APIs to third-party developers through API portals. Newer digital banks, such as Ally, have also opened their APIs for developers looking to create financial applications.

The API marketplace model lets financial institutions continue to provide and develop their central services, but also provides an opportunity to fill gaps from partnerships with selected 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 better fintech presence.

Typically, an API marketplace comprises several components, including an API manager, gateway, security and developer areas. It collects, categorizes and presents published APIs. A marketplace usually ensures APIs are searchable and have the correct categorization connected to them.

For some providers, deploying to a marketplace can mean replacing their portals completely. They can also market APIs based on categories and how they interact with consumers, third parties and applications.


NXTsoft offers secure paths for financial institutions to free up and connect with fintechs. OmniData enables financial institutions to access its data quickly and securely; and OmniConnect, the vendor agnostic premier open banking marketplace for all API needs, provides API connectors for as many as 40 different core accounting systems.

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May 30, 2023
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