Open API’s to Improve Banking Innovation and Customer Influence

By David Mitchell, President at NYMBUS

Banks and financial institutions are very much in the business of information and data. For many years, financial institutions were seen as the champions when it came to innovation. However, with the recent surge in digital disruption, is it maybe time for banks to adopt “open business”?

Open business refers to exploring methods of how data could be used to help improve customer service through innovation. Achieving this will make it easier to borrow, save and invest money, leveraging technology to improve the customer experience.

When we look at a traditional organization (like banks), most functions are kept in-house. IT, finance, marketing and HR are all there to support the core business. However, this also means customer reach and innovation are often limited to the potential the organization holds.

An open business model on the other hand looks to open up this information to the external environment which naturally provides a much larger capacity for innovation and customer influence.

Open APIs fueling innovation

API (Application Programming Interface) technologies make open business possible. They allow organizations to connect with products of another through a simplified and smoother process. Almost like an adapter that allows applications created by third parties to work effortlessly in conjunction with the operation as a whole. It can therefore be said that these application interfaces provide the foundation for innovation.

And this pace of innovation is exactly what financial institutions need in the current market to adapt and survive. It enables them to provide user-friendly customer service and give them the edge over competition.

One of the bigger benefits to banks of opening their business and sharing data is alternative revenue streams. By now, we are all aware of the growth in digital disruption. Clients go for the best experience, irrespective if this is provided by a traditional financial institution or not.

Additionally, rising fintech companies are supported by banking regulations that fight for increased competition and transparency.

The core purpose of these regulations is for banks and financial institutions to provide an avenue for external providers to access customer data like accounts, payment and product information through APIs.

Banks are traditionally very guarded when it comes to their individual operations and products. But looking at the increased competition and innovation this will provide to financial institutions, they really have no choice but to comply and adopt. APIs will facilitate this compliance. When you get solutions that are created by innovative technology companies but at the same time powered by banks, the biggest benefactor are the end users: customers.

It does mean however that the whole concept of the current banking ecosystem will evolve and change. Banks will be forced to widen their core processes to build on the potential that open APIs are able to provide.

Do banks have a choice?

Just like the emergence of the online phenomena, open business is not going anywhere soon. API based open banking will be the new medium through which financial institutions communicate with the digital community. It allows clients to make use of their banking services anywhere and everywhere, not just through the traditional avenues that the financial institutions provide.

So do the banks have a choice in adopting open API technologies? Unless they can risk falling behind the competition and losing touch with the ever changing industry, the answer would be a resounding no.

But it’s not all bad news for banks. These open API models will allow banks to become a central part of their customers’ lives by going beyond just the standard service delivery. It will also require some out-of-the-box thinking, an entirely new way of providing services.

Banks could for example look at taking advantage of APIs from insurance companies to guarantee the best deal for their customers. Or spreading the net wider and utilizing the APIs from different entities to provide its clients with advanced, automated money managing services, like efficient spending on credit cards or the best deals on car financing.

APIs also have the potential to provide previously unseen revenue streams for financial institutions. This could come in the form of licensing data to authorized third parties. It’s nothing new in other industries where a similar system is used to assist organizations in monetizing their information but at the same time keeping, and building, brand awareness.

This can be easier said than done. Although customers could greatly benefit from these arrangements, people – and businesses alike for that matter – are never too excited when they hear their data might be shared with external parties. Security will be the number one priority in order for open API sharing and open banking to work, closely followed by anonymity. However, a large number of regulators are in favor of such services, given the fact that it will be a major stimulus for competition. The only condition would be that data should be assembled in such a way that individual information cannot be reconstructed for fraudulent purposes. Despite this, it is easy to see the advantages it holds for banks over the competition when they adopt the concept of open APIs and business sharing.

Open APIs are here today

Open business and APIs are not something for the distant future. Other industries have already adopted this concept and many banks are following suit. It won’t be as easy as just unlocking the vaults to let the information flow freely. Banks won’t be able to immediately create a foundation to support this change in the ecosystem. Preparation is key. It will take some work to develop an API sharing platform that works with the organization’s architecture as a whole. It might even be necessary to look deep into the bank’s core systems to identify what needs to change in order to streamline the process.

But the fact is that open business will spur innovation and drive digital transformation. Financial institutions will need to adapt fast to provide the modern, innovative services that customers hunger for. Banks that can adapt to this transition swiftly and successfully, are bound for the top spot in the digital age.