APIs (application programming interface) are a key enabler in this evolution. Once a term reserved for technical experts, APIs are becoming part of our everyday language as they continue to evolve with more capabilities and opportunities for Fintech companies and financial institutions to work together and better serve their customers.
The role of an API
APIs act as a glue connecting multiple systems to make one efficient platform. Think of Lyft, which uses APIs to synchronize together maps, payments and texting in one seamless application. As we covered in our blog, What is an API and how can it help financial institutions? APIs are highly useful for financial institutions internally.
But APIs are just as important, if not more important, from an external standpoint. Most institutions are committed to being customer-focused and want to create a superior customer experience. APIs help generate frictionless, simple experiences for their customers. One of the key ways that APIs and Fintech partnerships are disrupting and changing the traditional banking environment is with open banking.
Open Banking
Open banking allows for banks to share data with third-party companies or applications securely, and in real time, through the use of APIs. Banks were once like gatekeepers of customer financial data, facilitating most exchanges of money. The rapid rise of Fintech companies worried the banking industry, but financial institutions are now beginning to embrace Fintech for faster innovation, accurate decisioning and increased quality.
From the customer perspective, open banking gives customers the ability to easily share their own data with third parties, compare, analyze and manage their accounts more effectively and ultimately make more sound financial decisions. Most bankers see personal loans as the most at-risk in moving to a Fintech company, but with the use of open banking, borrower experience can be greatly enhanced and expedited.
Traditional banking is not typically known for its speed, but with the emergence of open banking and APIs, financial institutions can create a more cost-effective solution while vastly increasing the speed to market. As these financial institutions continue to embrace APIs and open banking, they’ll be more equipped to partner with Fintech companies. The “language” of open banking technology optimizes third-party integration, creating greater accessibility to various partners and features. From comparing banking options, to new product offerings, open banking enhances the services that financial institutions can provide to their customers.
The financial space has changed significantly in the past few decades with the emergence of new technologies and increased competition in the marketplace. Based on a survey by PwC, 63 percent of bankers see the rise of Fintech as an opportunity to expand products and services. Expect financial institutions to start embracing the changes in order to keep their customers satisfied and provide enticing capabilities.