Mobiquity featured in Toolbox: How open APIs support innovation and change in banking

Corporate banks must move toward open application programming interfaces (APIs) to increase team productivity.

The need for innovation and change, especially during these unprecedented times has accelerated corporate banks to move toward application programming interfaces (APIs), shortcuts that make it easier for software developers to build new applications and increase the productivity of teams. Innovative banks that are tapping into open APIs are becoming leaders in their market, discusses Clayton Weir, Co-founder and CEO of FISPAN. 

As we enter another phase of work-from-home, the need for innovation in the commercial banking industry has never been higher. When the COVID-19 pandemic hit, many corporate employees started working from home and needed a more digitized experience from their commercial banks. Financial institutions turned to APIs to help meet these new expectations. 

Traditionally, APIs were mostly used for internal software applications but have now become more widespread. An Apigee report found media, retail, and information services industries accounted for 73% of API traffic. The financial sector has fallen far behind this trend, with very few banks having realized the full potential of APIs. A recent Finastra report found that more than 67% of banks feel they are being held back by legacy systems but also noted that since the outbreak of COVID-19 and 72% of banks have seen an increase in the integration of corporate banking APIs. The pandemic has encouraged banks to move faster on API adoption to accelerate their innovation and digitization initiatives. 

Let’s explore the three main drivers that are pushing banks to adopt APIs.

1. Global Regulation

Outside of the U.S., there has been a big push toward Open Banking and APIs. The recent Payment Services Directive 2 (PSD2), a European regulation for digital payments, encourages innovation in the financial industry by allowing third parties to access bank infrastructure.  

Open APIs and Open Banking have already started to reshape financial services, and banks have awoken to the opportunities that it presents. The EU and UK have already begun to embrace open banking and data sharing largely thanks to these new regulations. We have seen large banks like Barclays and BBVA open their APIs to third parties to comply with these regulations and move toward a more innovative financial ecosystem.

This year, we will see a growing number of banks experimenting and evolving their business models toward a more open, collaborative platform approach that will support emerging fintech and financial services.

2. Improving the Customer Experience

In the past decade, industry giants like Amazon and Uber have soared to new heights because of how they prioritize convenience. Personal banking followed suit and now can be easily accessed by the smartphone sitting in the consumer’s pocket. Accountants, treasurers, and CFO’s are currently looking for that same convenience in their work lives.  

Pre-pandemic, the rate of people switching banks was declining, with only 4% of consumers switching primary banks in 2018. Since the pandemic hit, the momentum has swung in the opposite direction. A 2021 Mobiquity Digital Banking Report found that 46% of those under 55 years old indicated that they would switch banks to get better digital features compared to only 27% of those 55 and older. Traditional banks should be looking for opportunities to provide an improved digital experience for their customers, in addition to better product and service offerings. APIs can act as an accelerant for banks to get digital innovations to market faster and improve user experience and connectivity for their corporate clients.

3. The Creation of New Products and Services

Banks should take advantage of open APIs to develop a personalized, integrated experience for their corporate customers. By leveraging APIs, fintech and financial institutions can improve the users’ experience through embedded banking and new service offerings. Instead of having multiple touch-points, financial institutions can integrate their banking capabilities where their clients live, providing a holistic commercial banking experience. 

With open APIs, banks kick open the door to further collaboration with third parties and fintech to help create these new integrated, digital experiences. In addition, there’s an opportunity to take the strength of smaller organizations’ innovation and API prowess to create and develop new or improved products and banking services to offer their customers. Banks can incorporate open APIs into various product segment strategies, including payments, working capital finance, cash management, and lending.

By moving to open APIs, banks can look forward to faster innovation with contributions from an entire ecosystem of third parties like fintech.  

Conclusion

Open APIs are the future of banking, and banks who move toward open APIs can expect a 20% potential revenue uplift, according to Accenture. Corporate clients are asking for a better digital experience and product offering and will seek out the institution that will provide it to them. With the recent push for more digital products and an improved digital commercial banking experience, it is time for banks to add open APIs into their strategies, and to partner with fintech to meet these expectations.