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Scalability Challenge: How APIs are Solving the Growth Problem

October 14, 2022


API for Payment

In this blog, we look at why APIs and open banking are critical for scalability and what US banks can learn from what’s happening across the pond.

APIs have become a crucial tool for modern businesses. APIs enhance the functionality and scalability of modern apps. From automating tasks to improving services, they provide organizations with various benefits. But certainly, with the benefits, there are some challenges that we will explore in this article.

The Truth Behind Open Banking

PSD2 has been viewed as the driving force behind banking across the board, with many banks viewing the shift as more of a compliance play than a growth one. Many banks view this shift as a threat rather than a commercialization opportunity. The truth is, many of the tenets of PSD2 are rooted in customer preferences as well. Customers want better security, more personalized offerings, and frictionless payments—all of which banks have been hard-pressed to deliver in a timely manner.

Rather than fighting the system, banks should be capitalizing on the opportunity to innovate and better serve customers. While strides are being made to embrace open banking, some are still missing the boat when it comes to addressing the underlying issues that are spurring this type of change in the first place. One such issue is the clunky user experience resulting from fragmented APIs.

Streamlining APIs for a Seamless Payments Experience

Seamlessness is at the heart of payments, and seamlessness requires standardization, adherence to best practices, and protocol. To scale, the open banking universe needs to address fragmented API standardization, which can actually have the opposite effect when not addressed.

Standardization will not only aid the open banking movement but will also quicken the pace of innovation. If the goal of open banking is innovation fueled by connectedness, the connectedness factor has to be rock solid.

The key is for banks to view fintech partnerships via open APIs as a way to better engage and retain customers. It enables faster development of more customer-centric offerings. Even in the US, which is outside of the PSD2 directive, banks stand to benefit from APIs. Many banks already use private APIs within their own organization to improve operational efficiency, and some are experimenting with partner APIs to expand to new channels and broaden product lines. US banks have perhaps been slower to adopt an open API mentality because of security concerns. However, consumer sentiment around open banking is unmistakable.

APIs for Growth & Innovation

Forward-thinking FIs that are already beginning to adopt an open banking model will spur others to do the same. Additionally, consumer desire will likely move FIs in that direction as calls for greater transparency and choice are heeded.

Open banking certainly offers more visibility into the third-party ecosystem—for banks, consumers, and regulators. This visibility should be embraced by FIs, who could greatly enhance offerings and technology to better meet the needs of customers. In an open banking world, FIs are not only creating products but acting as sources of data. Many banks don’t have the visibility they would like into third-party tools connected to their data. Greater transparency is a boon for all, especially banks, which must often foot the bill for fraudulent activities where the source is unknown. A pivotal point is ensuring that third parties that have access to FI data are meeting security standards.

Summing Up

The move toward open banking is slower than anticipated, but the ecosystem continues to forge ahead. It’s time for FIs to consider the myriad of benefits that open banking affords. In addition to increasing the depth of product lines, open banking facilitates innovation and improves speed to market. While security will always remain a concern, partnering with Fintechs that have a proven track record in this area can prove to be beneficial in propelling proactive FIs to the front of the line when it comes to consumer preference.

Talk to our payment experts today to know more!

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