Globally, banking practices are evolving, and people are learning more effective ways to manage their finances
Application Programming Interfaces (APIs) have significantly changed the banking industry over the past few years. In the UK, this transformation first began in 2016. It occurred when the Competition and Markets Authority (CMA) requested that a few prestigious banks allow third-party applications access to their user data. This demand led banks to share their data with fintech and related websites and applications.
Many organizations, including, began rolling out their API-based banking services. It suggested that fintech had significantly impacted banks. In 2022, 75% of the top 100 banks worldwide will have made public APIs accessible, per McKinsey APIs in banking research. However, this number is proportionally lower when organizations consider all banks combined. It implies that API use for data and service sharing has grown significantly while still evolving. Globally, banking practices are evolving, and people are learning more effective ways to manage their finances.
Since they are tying fintech to the banking industry, open banking and bank APIs are receiving much attention due to these innovations in the banking industry.
With technological advancements, the average person can now directly access banks and their services at the tip of their fingers.
How big data transforms fintech
Big data are revolutionizing the way financial service providers conduct business. Providers can make quicker and more accurate decisions about their goods, services, and marketing tactics by analyzing vast amounts of data. In addition to developing vertically into open finance, open banking is also developing horizontally into open data. As evidenced by the Consumer Data Right (CDR) standard, the only open banking specification not specifically related to banking and supports multiple economic sectors right out of the gate, Australia was foresighted in its understanding of this progression.
Big data has made it possible to develop new kinds of financial tools that weren’t previously possible, such as smart credit cards with integrated fingerprint scanners. It also helps with mobile banking apps that forecast when a customer will likely spend money. They can target them with relevant offers at the right time and apps that can save people money by automatically canceling subscriptions they are no longer using. The advantages of having big data in various industries will be essential to open banking’s success. Financial institutions will be well-positioned to offer their customers more cutting-edge services and products if they can harness the power of data.
What does this imply for organizations
For companies of all sizes, open banking holds a wealth of potential. Businesses can better understand their customers and spending patterns by sharing customer information with authorized third parties. Future business operations are likely to be significantly impacted by the growth of open banking. Those who can take advantage of its opportunities will probably have an advantage over those who can’t. Through payment initiation, open banking has a great chance to present new opportunities as payments become more personalized and data-driven. Customers can use this technology to connect directly to their bank and authorize withdrawals from their accounts without ever leaving the mobile or web environment they are shopping from. To provide users with a highly integrated and customized payments experience, Open Banking will be crucial to this process. It connects customer data from various solutions.
Qualities of leadership in the Banking API
Banking API leaders have distinguished themselves along the four dimensions of strategy, operating model, technology, and people, moving from an ad hoc to a programmatic approach to APIs:
API strategy: API leaders in banking no longer see APIs as technical tools. They want to use APIs to enable brand-new businesses through partnerships and third parties, which is even more ambitious than simply making money off of them. For instance, a bank and an insurer might agree to work together to offer a small- and medium-sized business insurance product. IT and the business create a clear API strategy that supports the organization’s top priorities and a detailed roadmap for internal and external APIs.
Operating system: Leading API operating models maintain clear ownership of each API throughout its entire life cycle, from creation to decommissioning, and deliver the API strategy in a cohesive rather than a siloed manner. Additionally, funding and governance are created to encourage API usage consistent with the overall business strategy. A top European commercial and retail bank that is “all-digital” credits its success with APIs in part to a fully committed product team spearheading the creation of a new API platform.
Technology: Several banks have succeeded by starting small with a few internal APIs and scaling from there. To ensure reusability and scalability, they are currently consolidating access into a single developer portal that is both internal and external with additional security measures. One bank has completely automated the documentation process by creating it from code to support “compliance by design.”
People: For most banks, developing new capabilities is a constant challenge. A bank in the UK is using gamification as a fun and successful way to boost API adoption and develop technical skills. The bank has seen a significant increase in the usage of the API portal and rewards the team that creates the most popular API with badges or even financial incentives. This strategy has allowed the bank to replace legacy integration technology more quickly and to scale API usage, which promotes an API-first culture.
Is open banking the future of fintech
Big data is improving fintech, and this trend will only keep growing in the coming years. To offer their clients the best services possible, financial service providers must embrace big data and open banking to remain competitive. Open banking stops established financial institutions from using their dominant position to stifle or delay the development of new technologies. As a result, to stay competitive, some of the more seasoned players in the financial sector are even taking steps to acquire or partner with fintech startups. Businesses can gain a sizable competitive advantage by utilizing the opportunities that open banking offers. Open banking won’t take long to spread beyond finance and into other sectors before it becomes the norm.
APIs are still developing in the banking industry, and leaders stand out in various ways that others can observe and copy. Because of their flexibility, banking APIs may offer as-yet-undiscovered sources of value and will be an integral part of banks’ strategies to increase and diversify their value pools.