APIs (Application Programming Interface) are a set of protocols for computer programs to communicate and exchange information. They were introduced to connect software or applications within an organization, but with the evolution of the internet, the use of public APIs or Open APIs is on the rise. Open APIs allow third parties to access an organization’s data and services in a controlled environment. An open API can be used both by developers within the organization and by any third-party developers or organizations who register to access the interface. This not only provides room for innovation for third parties but also offers an opportunity for them to add new functionality to their core offerings.

Global Prevalence of Open API in Banking and Financial Services

Open APIs are an emerging trend in the financial industry, particularly around digital wallets and peer-to-peer payments. Countries across the world are adapting to open banking business methods. According to the Banking APIs: State of the Market Report, the African banking economy has already accepted the open API approach. Open Banking has also been gaining significant prominence in the European banking industry—driven by changing regulatory mandates. Payment Services Directive (PSD2) is one such regulatory mandate that aims to standardize and improve payment efficiency in the European Union.

Banco Bilbao Vizcaya Argentaria (BBVA), a Spanish Banking group, was one of the first banks to develop public APIs for their businesses. According to Derek White, Global Head of Customer Solutions at BBVA, open banking, a customer-led business opportunity, is transforming the financial industry into reality.

PSD2, which came into effect in January 2018, enhances consumer data protection and supports provisions that allow third parties to access bank data via open APIs. This intensifies competition among banks and third parties in European nations. Now, banks are no longer competing against other banks but against everyone who is offering financial services.

PSD2 will fundamentally change the payments value chain and accelerate the digital transformation of financial industries initiated by FinTech companies. It is therefore clear that banks need to re-strategize and exploit the opportunity to maintain their position in the financial services landscape.

Market Opportunities

Perhaps the greatest risk of Open APIs is that customers can execute transactions without going to banks, making it difficult for banks to maintain a relationship with customers or keep track of their financial activity. Banks will have to quickly identify and capitalize on the opportunity by working together with FinTech firms to build customer trust and offer innovative products and services. Meanwhile, third parties are penetrating the market by providing personalized services using bank data via open APIs, thereby driving better experiences and engagement.

In the midst of this, customers are enjoying being at the forefront of benefiting from the adoption of open APIs. Customers can now interact with their banks in real time and have access to more information & services through their existing bank account. This has driven better engagement on banking platforms and enabled firms to meet customer demands.

Thus, it is clear that banks should keep a close eye on technological advancements to stay ahead in the market and focus on driving customer engagement, personalized products/services, and secure regulatory processes.

InfrasoftTech, a leading FinTech digital solutions provider, serves over 450 financial institutions across the globe, offering a gamut of seamless banking products and software solutions to meet end-customer requirements and gain a competitive edge.

Interested in gaining more insights on Open Banking? Write to us at marketing@infrasofttech.com