Terminology and technology evolve. Fintech and application programming interfaces (API), for example, are not new terms; they just signify change in today’s increasingly digitalized financial world. For financial institutions API-driven products and services might serve as a competitive threat or an important opportunity today and in the future.
Fintech, or financial technology, originally referred to only banking systems. However, it now also encompasses disruptors taking hold in financial services. Many financial institutions struggle to compete with fintech startups in terms of innovation and speed to market in areas such as payments, money transfers, lending and investing but APIs level the playing field and make it easier to rearm their technology.
Overall, estimates place the total of in-use APIs today at over 20,000 and growing at more than 2,000 each year. Some APIs are available for public use, while others are for strictly internal or restricted to two or more partners.
APIs can also vary by architecture type (REST, SOAP, RPC, etc.), but are frequently grouped as:
- System APIs, which access and maintain data.
- Process APIs to generate new methods to view or act on accessed data across systems.
- Experience APIs that add a framework to systems and process APIs to make information digestible for a specific audience.
APIs are a realistic way for financial service organizations to supply faster, convenient access to funds, financial resources and payment vehicles around the world. Essentially, open APIs allow software developers to create programs to talk to one another and produce better user experiences. A McKinsey & Company report described this as “the connective tissue linking ecosystems of technologies and organizations.” It added that “APIs allow businesses to monetize data, forge profitable partnerships, and open new pathways for innovation and growth.”
There are many ways APIs can create a better user experience. However, only a small percentage of financial institutions seem to grasp the value of APIs, while others are creating a hodgepodge of nonintegrated connections. Banks and credit unions should also make their APIs easier for third-party developers to assimilate their programs more efficiently with the financial institution’s backend.
The McKinsey study revealed financial institutions develop 91% of their APIs for internal use, with only 7% considered partner APIs, which communicate with a third parties such as a fintechs, and merely 2% as open APIs.
Financial institutions must do a better job of developing and utilizing APIs especially in a pandemic world where everything hinges on remote accessibility through digital platforms. Seamlessly rolling out new programs on a regular basis or working with third-party software companies to provide an enhanced customer experience is a must but it still needs a coordinated effort that takes a look at the total IT picture.
NXTsoft’s vendor agnostic OmniConnect Platform, the premier open banking marketplace for all API needs, uses cutting-edge cloud technology to connect fintech solutions to financial institutions, ensuring that NXTsoft clients have the most secure and reliable integration environment in the industry. OmniConnect provides the access needed to the financial institutions information, removing integration obstacles and providing a seamless connection between third-party API solutions and financial institutions’ core digital banking, item processing and financial systems.