How Open Banking APIs are Lifting Up the Financial Industry

Open banking is expanding technology in the world of digital banking, forcing banks to change their business models – for good. Rather than competing against fintech or third-party organizations, bank holders can grasp open banking to ally with them while standing out from the competition in the rapidly evolving industry.

But before we move ahead and understand how open banking and APIs are escalating the financial industry, let’s learn a bit about both of them.

What are Open Banking APIs?

Open banking is the system under which banks enable third parties to access financial information required to develop new services and apps while providing financial transparency to customers worldwide.

Although open banking allows third parties to develop better PFM or personal finance management applications, it pressurizes holders to improve their offers. It cultivates competition in the banking industry that forces holders to heighten their financial services or partner up with fintech.

Whereas, APIs are a set of codes and protocols that determine how each component of the software should interact. It enables different applications to communicate with one another. APIs are necessary for the functionality of Banking as a Service (BaaS) which is a key component of open banking.

Therefore, using Open Banking APIs, banking data will become available to the customers in real-time providing them with the opportunity to conduct transactions, invest and save their money. It will also offer them access to great loan terms as lenders will be able to see their historical transactional data and analyze the level of borrower’s risk. Not only that, but Open Banking APIs also centres on offering more personalized information to the consumers so that they can make sound financial decisions.

How Banks Can Benefit from Open Banking APIs?

The finance industry has come around to the idea of how Open Banking is redefining the landscape of financial services in numerous ways, especially by assisting financial firms to improve revenue from new channels, increase service offerings and enhance customer engagement.

By adopting and deploying APIs, banks can enhance and extend native offerings and services. With the opening of the API, banks can easily connect other APIs in the market to expand their offerings by introducing FinTech solutions as plug-and-play methods.

Some of the examples of these APIs are the National Change of Address (NCOA) API that alerts banks in case a customer changes their address or Experian Connect that offers customers the capability to check their credit score in real-time via their bank account.

But it also builds a threat for the banks. Open Banking APIs can allow Fintech firms to tap into the financial data of the banks to build an application that helps customers to manage their debts, budget finances, and acquire real-time financial or investment advice through chats with experts. Simply put, by opening an API, banks enable FinTech to fulfil the gaps that were in their legacy systems and choke the relation between banks and their customers.

Although from the above-mentioned threat, a bank can altogether drop the idea of Open Banking. But a bank can also acknowledge this as an opportunity, given Open Banking is not going anywhere. Some of the Fintech startups are already developing such services. So to grab this opportunity, banks need to address this threat and enhance their offering and products through advanced partnerships.

Not only that, but Open banking APIs also provide the possibility to inform, improve and value their data analytics securely. As a result, it will enhance the customer engagement of the banks.

Successful Strategy For API in Open Banking

An important factor to a successful API strategy is to acknowledge that an open API is a commercial business product and not just a technical interface. So the process of converting a bank’s service into an open API should be driven by the business with the help of expert developers. Also, a successful API should enable:

  • Acquiring More Data

One of the basic requirements an open banking API should fulfil is gaining data from customers that can allow better customer insights that can be used to improve revenues and creating a more personalized experience for the consumers.

  • Improving Customer Satisfaction

API should be built for customers that expose them to valuable services instead of just providing the transactional history of the account. It can be achieved by adding value-added services to the data or enriching the raw data with categorization.

  • Create New Streams for Revenue

It means the API should help create new opportunities for generating revenues. Some of the different monetization models like end-users paying transaction fees to use the solution, partners & banks entering into a revenue-sharing agreement (something like pay-per-click ads), and partners paying for data usage or services.

Simultaneously, an Open API should be carefully monitored, well-marketed, supported by development portals, and cross-platformed. Most importantly, it should not just focus on the outbound APIs, but should also have a strategy to use other companies’ APIs to allow faster creation of new services.

Future of Banks With Open Banking API

Keeping the adoption and growth of banking APIs usage in mind, the future of open banking APIs seems promising. APIs capabilities to create new means of engaging with the customers, suppliers, data and transactions will be transformational.

A few financial institutions have taken their initial steps in the open banking APIs system evolution. Some of the popular examples of these institutions are Credit Agricole, Citi, BBVA, MasterCard, VISA, Fidor, Capital One and Swift. And more banks should now move towards exposing well-documented and well-defined services to the outside world. This method of uncovering the products and services as APIs will allow banks to discover new opportunities while allowing them to evolve into a more agile and customer-centric architecture.

Banks or other financial institutions that will not take open banking APIs seriously will witness a fall in their competition value. So if you too want to take advantage of APIs in Open Banking, then hire expert developers who know how to deal with API as well as secure your banking applications.

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Author: Mahipal Nehra

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