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Why Banks Should Use APIs from Fintech Partners

Aug 22, 2016 10:00:59 AM

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Have you ever tried to build a Tesla automobile using parts from a 1974 Datsun?

Probably not.

Merging hot new technology with legacy systems and components doesn’t always work so well.

This case isn’t much different in banking. Over the last few years, banks have played catch up, trying to appeal to account holders by integrating slick new GUIs (Graphical User Interfaces) on top of decade’s old web, mobile, and mainframe infrastructure.

Outcomes are mixed. While some banks have developed attractive and useful proprietary apps, only recently have the banks opened up APIs to encourage community development and innovation.

On the other hand, younger (and generally unregulated) fintech companies have harnessed cutting-edge technology to develop user-friendly apps, APIs and GUIs.

For banks to continue improving their app offerings, they must abandon ineffective legacy technologies and mimic fintech API functionality, or better yet, integrate fintech APIs completely.

Why APIs?

An Application Program Interface (API) is a set of standards, routines, protocols, and tools for building software and applications. APIs are shared resources that allow any developer to build software on top of existing software. APIs are used when programming graphical user interface (GUI) components and help software communicate with other software.

Historically, popular APIs originated from technology firms such as Google, Twitter and Amazon and allow mobile or browser-based users to access program components, such as Google Maps, Twitter search terms, and Amazon selection and discovery functionality. Technology firms realized that to give via an API is to receive. Building standardized pathways allows third-party software (and by default, developers) to interact with proprietary data and functionality. The result: tech companies benefit from community development, innovation, and propagation without jeopardizing core platform security.

How Do Open APIs Impact Banking?

Opening up APIs requires a massive shift in banking industry culture. Previously, APIs, networks, and most apps were hidden behind proprietary bank walls. These bank walls stymied innovation and allowed faster moving Fintech firms to poach customers that demanded faster service, better security, and increased functionality. Banks have started to realize that they can retain customers by opening up, and at the same time, benefit from community innovation.

Non-Traditional Competitors, Trending Initiatives

Startup fintech firms aren’t the only ones delivering high quality APIs. Large-scale technology companies have hopped head-first into the financial services game and have already gained significant market share. Apple and Samsung Pay, for example, have significantly disrupted the payment space, allowing phone-based payments and supplanting the need for credit cards. Other competitors aim to disrupt the investing and lending spaces, payment gateways and processing, remittance, authentication and verification, accounting, and payment acceptance, just to name a few.

Opening up APIs will help the financial industry speed up innovation and development, allowing them to compete with the likes of Apple and Samsung. “APIs are one of the most important tools in digital business design,” said Peter Wannemacher, an analyst at Forrester.

MX is also innovating in this space, with a focus on products and solutions that empower financial institutions to deliver innovative platforms, apps, and APIs that improve ROI and win new account holders.

Bottom Line

APIs provide a way for the financial services industry to innovate quickly and catch up with the competition, all without sacrificing critical security features. If banks want to reclaim the financial innovation space, they must offer an option for rapid product development through scalable, reliable generic public APIs.

Banker's Guide to Digital Advocacy

Kenneth Dabkowski

Written by Kenneth Dabkowski

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