Open Banking and Financial APIs: How to Integrate Your Company with the Digital Financial Ecosystem

COVID-19 has had a profound impact on the key functions of the financial landscape. Against this backdrop, the world needs to acknowledge the significance of this major paradigm shift for supporting finance-centric companies and lending institutions in their post-COVID recovery and growth. In that regard, studies also revealed the need […]

Open Banking and Financial APIs: How to Integrate Your Company with the Digital Financial Ecosystem

COVID-19 has had a profound impact on the key functions of the financial landscape. Against this backdrop, the world needs to acknowledge the significance of this major paradigm shift for supporting finance-centric companies and lending institutions in their post-COVID recovery and growth.

In that regard, studies also revealed the need for investments in efficient digital infrastructure to facilitate post-crisis recovery. For this reason, open Banking and bank APIs can leverage their benefits to create the ideal digital financial ecosystem. However, what exactly is open banking and how is it related to bank APIs? Here’s how:

Open banking refers to the concept of banks allowing players in other industries access to use financial data to foster a competitive environment between larger and smaller firms. Improved customer service is also part of this concept. Banks can share their customer’s personal financial data via APIs, allowing third parties to use this information, allowing for seamless personalization with seamless user experience. You can, for instance, connect your existing bank account with third-party apps to track your expenses and follow your savings plan conveniently.

Meanwhile, APIs are at the core of open banking’s technology. The API is a format that allows systems to exchange data and requests, usually, in a controlled, secure environment. Currently, three types of APIs are used in finance:

  • Internal APIs used for sharing data across internal systems and users.
  • Private APIs that allow banks to exchange data with their partners.
  • Open APIs (public APIs) allowing for sharing data with a wide group of users with limited access to information.

Implementing Public APIs in Bank Operations

Developing an open data concept requires extensive engineering work. Here are some recommendations for implementing an open banking strategy:

  • Identify a strategic goal for the implementation of open banking: Paying attention to just one of the service domains will allow for incremental and gradual development while minimizing risks (such as payments, finance tracking).
  • Be prepared to take both the role of an early adopter and a follower: the banking industry is fiercely competitive. Banks develop different APIs that the market may or may not demand. Therefore, it would be wise to develop strategies to test fast hypotheses, automate the scaling of successful projects and eliminate the rest. It means blazing a trail in some implementations and following a well-worn one in others.
  • Set clear objectives: Assess the impact of each API implementation in your institution. It could be extra revenue, an increase in market share, expansion in geography and more. Whereas, a financial institution should conduct a data audit to determine which types of customer data are available for internal and external use. A bank may also need to assess the data potential of machine learning and other analytical approaches to improve fraud detection, credit scoring, pricing, and cross-selling.
  • Formulate the product development strategy for every open API: To meet financial regulations, banks should prepare a data management system, alter their enterprise software architecture, and ensure that their internal systems comply with the law.
  • Decide on the right means to deliver a project. The financial institution can build its own API or rely on pre-built APIs from providers. When implementing a semi-ready solution, it is often reasonable to hire a reliable technology consulting partner to help with the software engineering work.
  • Create an ecosystem of partnerships: Banking cooperation allows institutions to increase customer retention, develop value-added services, and gather additional data about their customers.

Several fintech companies and non-bank financial institutions have provided end-points for integration with third-party services. Developers have several options to choose from.  Here’s how to choose the right API for financial integrations:

  • Establish a strategic goal for integration: Integrate options to improve customer experience, cross-selling, acquiring additional customer insights, or improving fraud detection.
  • Analyze your CRM: This is to determine which banks are popular with your customers, then research which banks make up the largest market share among your target customers. The results will help shortlist financial institutions for further research.
  • Review the documentation: Check for detailed FAQs. Depending on the API, it may be free or have limitations, such as the number of queries per hour.
  • Identify and analyze offerings from each of the shortlisted providers: By integrating several APIs, you will be able to solve the problem. To maximize your advertising campaigns, check whether any shortlisted institutions can provide transaction history.
  • Comply with legal and standard requirements: Developers should confirm the API’s security standards. If the legal department determines that the process of data sharing meets the legislative requirements, it should prepare the approach for getting permissions from end-users.
  • Consider a few alternative scenarios for implementation: The research you perform may indicate that certain providers don’t offer an appropriate API, thus you have to consider other approaches or features.

To Conclude

By concurrently embracing digital inclusion and digital transformation, traditional financial companies will become more resilient in the global digital financial ecosystem. Eventually, when this movement comes to fruition, the world will have equitable access to this groundbreaking concept.

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