In the digital age, technology is a prime driver of bank success. Since the start of the pandemic, more consumers are using self-service banking and digital communications in preference to in-branch services. Although it’s early days, some of this behavioral shift  is likely to be permanent. In this new world, technology can determine the overall customer experience, which is a bank’s defining competitive differentiator. In simple terms, technology has expanded from the back office, to be at the front middle and back of everything a bank does.

Many banks have mixed technology stacks where mainframes do the day-to-day processing. And while these heritage platforms do a great job of this, banks can supplement this critical backbone to participate fully in open banking. Historically, a bank wishing to adopt modern technology had no real choice but to undertake a risky and costly “rip and replace” of its core platform. However, with modern technology, particularly application program interfaces (APIs), a bank can open up its legacy platform to reap the benefits of open banking while preserving its existing technology investments. In practice APIs are the “glue” that enable mixed technologies to coexist in harmony. Let’s consider how.

APIs and Integration

API technology is not new, but it has recently been in the spotlight as the prime enabler of open banking, which ushers in a new era of collaboration throughout financial services. APIs redefine what can be achieved through integration. For example, payment services can be embedded into a supermarket app so a customer can pay directly from a bank account, reducing friction and improving the customer experience.

Although APIs are mainly about integration, in practice they facilitate much more. Systems can be decomposed into constituent components, which can be fully integrated with other applications within the same organization or with third parties. For example, Uber – and other ridesharing apps -  calls upon Google Maps to manage geolocations and provide directions.

Although much of the attention around APIs has been directed towards the integration of front-end banking services, APIs can also play an important role in integrating internal systems to boost efficiency and orchestrate business processes in real time. In this way, APIs can accelerate legacy enablement and make a bank more agile and responsive to new opportunities:

Mobile. With more banking transactions being completed on mobile devices, banks must process an escalating volume of transactions, often in different formats and in real time. Many legacy payment platforms still use batch-based payment systems with workarounds to support real-time and mobile payments.

A well-considered API strategy allows data to be exchanged in real time to support mobile payments and other applications, without the major risk and expense of a major systems upgrade. In this way, APIs can ease integration and boost efficiency within budgetary constraints.

Stay ahead of the competition. Many banks face increased competition from startups that are unencumbered by legacy technology and business processes. Offering a tech-first approach, these digital or “neobanks” are constantly raising the bar in terms of processing efficiency and business agility. For those banks that have technology stacks without APIs, project time to launch is much longer and it can be difficult to remain competitive.

By adopting an open API strategy, banks can become more efficient, agile and cost effective and fend off competition from digital newcomers.

Become customer centric. Banking channels are an accident of history. In the beginning there was just the branch network, then ATMs were added, followed by call center, online and mobile. From a customer perspective, channels are irrelevant – they want banking their way so they can begin a banking journey on one channel, then continue on another.

For many banks, supporting a full omnichannel banking experience can be a costly technical challenge - connecting legacy technology stacks to smartphones and tablets is not easy. More to the point, they need to do this at scale. APIs let developers quickly translate legacy protocols into modern systems of customer engagement so a bank can remain relevant in the digital age.

Open Banking and Innovation

The essence of open banking is to boost innovation by giving customers access to their data and empowering them to share it with third parties. Open banking is about doing new things, but it is also about doing things in new ways. APIs enable banks to provide access to the data held in its systems to customers and members or third parties.

APIs can potentially be marketed and monetized as products that can be positioned where and when people need them. This is already happening in many sectors, and we use APIs every day, for example, when we use our smartphones to book a hotel or travel tickets. Open banking creates a new world of possibility for bank innovation and creates an opportunity to develop an entirely new market for financial products that includes:

• Real-time decisions on personal lending, for example in the car showroom
• Mortgages – finance offers can be positioned earlier in the customer journey, for example, when browsing properties
• New geo-sensitive advertising that promotes products where and when they are wanted
• Initiating payments as part of a seamless customer experience
• Harnessing the power of transaction data to enrich and improve the customer experience

Financial institutions should talk to their technology partners and find out how APIs can boost innovation and offer a roadmap to open banking success.