The Four Steps to Transforming Financial Services with APIs

By Heather McKenzie in Enterprise Integration Posted Apr 19, 2019

The financial services sector has been relatively slow in adopting APIs. However, the move towards open banking – encouraged and in some cases mandated by financial regulators – is driving financial institutions to look more seriously at APIs. Open banking is about bringing more competition and innovation to financial services. APIs are the tools that will enable financial institutions to compete and innovate by establishing open banking platforms that unbundle payment, credit, investment and other services.

While some institutions have reported disappointment in the results from API initiatives, they would do well to keep their eye on the main prize – an online banking platform that can transform business processes and the customer experience.

There are four steps of API deployment via which financial institutions can transform their businesses, from the most basic to the most advanced. Here are the four steps: 

Step 1: Transaction Transformation

The most basic API approach is to replace file-based formats with more agile and flexible APIs. Financial institutions can, for example, use APIs to integrate transactions with a counter party bank or with SWIFT to complete a payment through a network, for example. This is a fundamental aspect of how transactions will be done over time, with unwieldy and error-prone file-based transfers becoming a thing of the past. However, in such deployments APIs are not integrated and operate as standalone elements.   Transaction Transformation | Cloud Elements


Step 2: Re-engineering Business Processes

Re-engineering Business Processes Once a bank deploys APIs in its transaction activities, it is a logical step to use APIs to re-engineer or optimize business processes. By integrating transaction APIs to commercial banking clients’ accounting systems directly, the bank – and its client – can optimize processes and eliminate manual steps. This improved efficiency delivers cost savings and enables banks and their clients to better manage liquidity, for example. 

If this integration with accounting systems is done in real time, financial institutions can create state of the art treasury management and payments reconciliation services. Eliminating manual steps and optimizing processes benefit everyone in the chain.


Step 3: Transforming the Customer Experience

By more widespread API integration, banks can transform customer experience and create new customer experiences. Combining banks’ own APIs with those of other financial institutions, fintech companies and cloud applications and services can create new experiences for customers, who gain access not only to the applications created by their bank but also to those of the other entities. At this third phase, banks can invite third parties to write to their APIs, which will seamlessly fit into their natural workflows. Transform the Customer Experience | Cloud Elements 


Step 4: The API Ecosystem

The API Ecosystem | Cloud Elements

The ultimate goal in implementing an API integration strategy is the creation of an ecosystem that delivers a true online banking platform. Within this ecosystem, fintech companies and other third parties can work with the financial institution to seamlessly integrate their APIs, creating new customer experiences and new revenue sources. This is not about connecting APIs in a piecemeal fashion but is about creating an ecosystem of applications that work interactively to create a full platform.

In this ultimate phase, APIs move from being just another application to becoming part of a wider ecosystem. The benefits of such an approach are already very visible in the software industry, where the most successful Software as a Service (SaaS) companies have created their own ecosystems and participate in other providers’ ecosystems.

 

Closing

In the increasingly competitive banking environment, building an API is just ‘table stakes’; it’s a start, but it doesn’t enable anything other than low-level connectivity and transactions. It is only when a financial institution looks to integrate APIs can it re-envision the end to end experience for customers and optimize both its internal experience and those of its customers.

Cloud Elements enables fintechs and financial services to integrate faster, allowing you to deliver innovative, competitive digital experiences. To learn more about how we serve financial services, click below. 

Integrate Financial Services

 

About the Author: 
Heather McKenzie is a freelance journalist and editor with more than 35 years of experience in journalism. She covers a range of topics within financial services, including technology, transaction banking, investment management, commercial banking and trade finance.