The term ‘application programming interface’ (API) refers to communication protocols that are used to connect different parts of programs as well as simplify software implementation and maintenance. An API can be used in a product format to embed the software capabilities of one platform in apps and websites of other platforms. A classic example is the use of Google Maps in cab booking and food delivery apps. But what do APIs have to do with the banking industry and how are they beneficial?
Despite having a reputation for being fairly behind when it comes to digital innovation, the banking industry is now using API ecosystems and open APIs – what is now known as Open Banking – in transforming the way they operate.
What this means: Data Aggregation and Data Integration
By linking their master customer database with the databases of their various applications and programs with APIs, banks are building networks that will act as safe bridges for data transmission. This aggregation of data is used in the promotion of various banking services, payment methods, and banking products – depending on the customer.
Thus, APIs have addressed one of the biggest challenges banks have struggled with over the years – data that has been trapped in silos due to their sensitivity and sheer volume. Extracting data from these reservoirs for use in other platforms has always been a tedious, time-consuming, and expensive process.
The benefits of an API ecosystem
Better customer experience
With a considerable reduction in time taken for transactions to seamless transitions across banking platforms, the use of APIs significantly improve customer experience (CX). With CX being one of the most important factors that determine business success in any industry today, this is good news – not just for customers but also for the banks themselves!
Customers can now expect personalized services and packages, even in banking, thanks to APIs that seamlessly integrate data across systems and allow for their effective use. This optimization of services based on customer data analysis increases the value of this data and leads to a rise in customer loyalty.
69% of customers feel that innovation in banks is important to them. With open APIs integrating transactions and information flows, newer business models that improve competitiveness cashless payments with better convenience and security for senders and receivers, and mobile-first experiences are finally becoming a reality!
With better customer engagement and better collaboration with other eCommerce businesses and financial service firms, banks can expect an estimated 10-20% increase in their overall revenue. On the other hand, those who don’t invest in APIs are said to lose up to 30% of their revenue to “disruptive industry players”.
Compliance to regulations
APIs are being adopted by banks in order to comply with recent regulations and payment service directives in Europe and countries across the world. As part of these regulations, banks are required to offer customers and third parties with access to specific data through the use of APIs.
The next level: Banking-as-a-Service
Thanks to APIs, fintech and other third parties can now build new banking products or white-label banking services on top of banks’ regulated infrastructure to unlock innovative possibilities. In this way, banks can add to their revenue through banking-as-a-service (BaaS) while third-party providers keep customers happy!
It is evident that, with APIs transforming the very landscape of financial services, the possibilities for innovation and growth are limitless. At CloudNow, we offer robust API architecture solutions and API ecosystems to help our customers connect, interact, and collaborate with their own internal systems as well as third-party providers. Are you ready to develop a winning API strategy? Get in touch with us today!