APIs are enabling a new and better era of banking and financial services
I recently participated in the office March Madness1 pool and like every year, I made my picks, paid the “commissioner” a few bucks, and hoped for the best.
This year, however, something really stood out. Very little cash was exchanged. The under-30 crowd used Venmo to pay their entry fees. The 30-40 crowd PayPal’d, and everyone else seemed to get on their mobile banking apps. What seemed like a minor change to a long-standing tradition was actually just a microscopic version of what’s happening to money and banking transactions all over the globe.
Banking and financial institutions have been slow to take full advantage of the digital landscape. With vast resources available to make their activities, and those of their customers, much easier, they have been slow to open up more. This is partly due to some level of customer ambivalence. It is also due to a legitimate concern about exposing private institutional and customer data to potential risk. In the meantime, services like Venmo and PayPal thrive while financial instituations miss out. Companies like Venmo and PayPal are really a small part of the entire BFSI digital disruption picture. This disruption is huge and the banking and financial institutions know it. Like it or not, they have to pivot and adapt or risk becoming perceived as obsolete.
We developed the Akana Financial Services Solution so banks and other financial services organizations can pivot more quickly and effectively meet customer needs. At the application level, the solution is about getting functionality in front of users who want quick and easy access – to their money, to loans, to anything that has to do with their economic situation. On the backend, the solution connects applications, data repositories and functionality from different sources to make banking transactions faster and more robust.
We’ve been working closely with all types of banking, financial institutions and insurance companies for a long time, and we understand how to map APIs into their business goals. We currently serve 4 of the 5 biggest U.S banks and 2 of the largest global insurance companies. It’s very clear that while they want to be more available to customers, they also require a fairly complex architecture that itself requires a very secure environment.
Financial companies are getting more serious about extending the reach of their services and are using APIs to create this transformation. It’s an appropriate use because APIs provide banking customers with access, speed and connectivity. Customers don’t run around asking for APIs . But they do ask for the services that APIs facilitates. Whether they are consumers using retail services, or large institutions, they want quick and easy access to capital. So they can use it, lend it, save it or spend it whenever and wherever they want.
Access is critical to any element of economic activity. Whether it’s access to capital, to insurance, to leverage – it’s all about using money to get the things you need and want. You can’t buy a house, a car, or even a pizza without money. If the money is yours, you want your bank to make it available to you 24/7. Perhaps you don’t have the money and you’re buying with a loan or on credit, you still want the bank to find the money at a good rate for you to use. Currently, this can require a surprisingly manual set of processes. However APIs have by shifted the process from linear one, to one that is interconnected. APIs serve to integrate different sources and organizations. Now each organization in the ecosystem (originator, lender, insurer, etc) all have their needs and requirements met.
Speed is almost as important. It’s one thing to get the money; it’s another thing to use the money. The current mode for reconciling financial transactions is with a batch style. There are some restrictions that explain the inability to operate in real-time such as the Federal Reserve requirements for overnight clearing of money transfers. Additionally most financial systems still rely on legacy systems and older data sources which don’t work well with faster channels like mobile platforms and the cloud. However the good news is that banking companies that understand how to use digital channels are decoupling legacy system functionality by using secure APIs to connect backend sources with all different types of applications. This changes how, when, where and to whom the applications can be used. And it increases the responsiveness of the application in the eyes of the customer which gives the company an economic advantage.
One of this year’s predictions is that there will be a new era in Open Banking. Banks haven’t always kept pace with digital innovation. Consumers and enterprise customers alike want it all – security, speed, integrated apps. In the modern era, when you can pay for a March Madness pool with your phone, or a parking meter with your watch, the financial industry will figure out how to join the party. And APIs will be the enabler. The banks and financial institutions that adopt APIs as strategy will win. A good resource for them is the API Economy – the making of Digital Business.
- For the uniniatied, each spring March Madness poolsare formed to place sports bets on the annual NCAA Men’s Division I Basketball Championship