Open Banking APIs Explained

Category: Data Connectivity , The Bottom Line
Author: NXTsoft

The emergence and growing importance of digital banking to consumers, financial institutions and fintech suppliers have revolved around the capacity of open banking systems. Through application programming interfaces (APIs) open banking allows the integration of products and services that can help deliver better consumer experiences.

During the pandemic, digital banking transformed from an upward trend to a surge. Consumers wanted access to banking services from their digital device, which is usually right next to them. Open architecture core-banking systems provide banks and credit unions with the ability to keep up with these rapid digital banking changes as well as interconnect best-of-breed functions for branch, online, mobile and ATM channels.

Financial institutions and fintechs can take advantage of APIs to integrate legacy or disparate systems, to apply financial technology in meaningful ways that support innovation, consumer demands and solve some industry pain points or opportunities. The objective is bringing together siloed systems to create new products or services, or solve other efficiency or operational issues.

What Is Open Banking?

Fintech provider Finastra revealed the appetite for open banking by financial institutions is picking up pace, with 86% looking to use API connectors to enable open banking capabilities. An open-banking environment enables financial institutions and fintechs to help customers adapt to a changing financial world.

The catalyst to a more open banking system stemmed from the restraints of the closed core systems, which included high maintenance costs and the inability to compete in the market, especially via digital banking channels, due to vendor limitations.

Not too long ago, core processing and other major financial technology providers had to develop customized software integration to third-party providers requiring numerous versions and run throughs.

An open architecture allows banks and credit unions to enhance digital banking channels by more easily integrating with partners and third-party developers through application programming interfaces. This helps financial institutions respond to specific market opportunities and business requirements, and improve consumer experience, convenience, satisfaction and engagement.

Pioneering new fintech products built by external developers leveraging information from financial institutions can deliver additional revenue and provide accountholders with more of the data-driven services and products they expect.

Open banking also allows financial institution to retrieve and analyze data; and third-party providers to integrate their innovative tech more easily.

What is an Open Banking API?

In the last few years, APIs have grown from in-house tools to critical elements that link organizations and enable new application and system advancement. These technology ecosystems encourage open banking and data sharing.

There are four main types of APIs:

  • Open APIs: aka Public APIs, which have no restrictions because they are freely available.
  • Partner APIs: Developers need explicit rights or licenses to access this type because they are not publicly available.
  • Internal APIs: aka Private APIs, typically used within a company to improve processes among distinct teams.
  • Composite APIs: designed to batch API requests rather than use multiple journeys to a server.

Open core-banking API systems allow financial institutions to add, upgrade, and swap components easily without any proprietary constraints; and the ability to keep up with rapid technological changes, particularly in digital banking.

Being able to add third-party solutions also gives banks and credit unions the ability to choose the best overall experience for both employees and consumers. It is a practical way to supply customers with faster, convenient access to funds, financial resources, and payment vehicles, especially when combating nontraditional financial players.

Open APIs also allow fintech partners and third-party developers to integrate systems more easily on existing core infrastructures. With an open API-friendly infrastructure, financial institutions can also choose products they want to surround their core system. They can integrate with hundreds of vendor applications, offerings and technologies.

Compete with the Big Banks

Finding a Safe Go Between in an Open Banking Environment

In order to capitalize on the shift toward more open banking, many credit unions and banks seek a fintech partnership. Many pursue help in areas to improve their mobile banking and payment channels, personal digital assistants, saving and investment tools, fraud mitigation, payment processing, and artificial intelligence/machine learning capabilities (including chatbots). They also want upgrades to their digital banking platforms to provide real-time and same-day banking services, big data access through open banking to provide customers with personal and actionable insights; and robotic process automation to power existing processes.

Partnerships between fintechs and financial institution are mutually beneficial. For credit unions and banks, an open-banking solution tapping into new technology can extend their market reach, connectivity to customers and provide new revenue opportunities. Meanwhile, partnering with financial institutions by gaining access through open banking APIs allows fintechs to strengthen their offerings. An API marketplace — which includes an API manager, gateway, security, publisher and developer — helps bring the financial institutions and fintechs together.

Is open banking safe? While open-banking APIs enable financial institutions, vendors and fintech companies to share data there are still valid concerns over the safekeeping of information passing through them. Apprehensions related to cloud security and an upsurge in cyberattacks are also important issues to consider when entering the open-banking/cloud API marketplace.

NXTsoft's API connectivity provides a best-of-breed connectivity solution for financial institutions and fintechs. With our solution, financial technology suppliers can close deals quickly with pre-built API integrations into so many existing applications. You can take advantage of our experience connecting fintech solutions securely to banks and credit unions, using the strongest technology foundation and the most cutting-edge cloud-based technology; and following the uppermost industry and regulatory standards.

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. Headquartered in Birmingham, Ala., with offices in Atlanta, Orlando and Denver, NXTsoft currently services over 2,900 customers, comprising of 1,500-plus financial institutions.

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March 29, 2021
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