Banks and other financial institutions like credit unions, investment companies, brokerage firms, insurance companies and others have operated traditionally through brick and mortar offices. For setting up and maintaining a physical office, these institutions have to spend a huge investment. Also, they face difficulty in staying competitive and improving their productivity and efficiency.
The advent of the digital revolution in the past few decades took the world by storm and impacted every industry, including the banking and financial sector. APIs or Application Programming Interfaces are the tools that are helping banks and other financial institutions achieve successful digital transformation and enabling them to capture market opportunities and flourish.
What are APIs?
APIs are a set of programming instructions that enable direct communication between different software systems. So they can communicate in real time. Also, communication can be continuous. Through APIs, one software application is able to ask another application to form a task or a series of tasks.
Such communication through APIs forms the basis of many popular apps like Uber and Expedia that people use all the time without even realizing the role APIs play in the process.
The Uber app communicates seamlessly with Google Maps and the specific payment method chosen by a user, so he can select a location, board a taxi and pay for the service, all in one place, whereas Expedia app lets shoppers select best travel options.
Benefits of APIs for the Banking and Financial Industry
1. Fast and Efficient Operations
By adopting an API enabled approach, banks can serve their customers quickly and efficiently and provide them a seamless experience. APIs enable customers to conduct banking transactions through mobile banking, online banking and wallets on their devices within seconds and securely from any place. So the customers need not visit the banks physically for conducting the transactions, thus saving their valuable time.
With almost 90% of transactions taking place today outside the physical branch of the banks, they are able to save significant resources and costs, which consequently helps to improve their financial health.
2. Digital Only Banks
APIs are also instrumental in taking the banking sector one step ahead by facilitating the opening of digital on Suggested read : How Large Ecommerce Players are Using API’s
ly banks. Ally and BankMobile headquartered in the United States, Fidor headquartered in Germany, CBD Now headquartered in UAE and Digibank headquartered in India are some good examples of digital only banks.
3. Augmentation of Product Portfolio
APIs are helping banks expand their portfolio of products by letting them offer complementary products like insurance or products that they co-create with their partners and financial technology firms. Such portfolio expansion is possible only due to the versatility of APIs that connect with varying systems and facilitate exchange across industries.
The ICICI-Paytm association for short-term instant credit is a great example in this context. It shows how API-enabled connections are helping financial institutions to translate insights gathered from customers’ digital behavior and credit check into real-time lending offers.
APIs are also enabling banks to offer non-financial products along with financial products. As an example, Emirates NBD, a bank owned by the Dubai government is enabling its cardholders to access hospitality, entertainment and retail products through its API driven e-shop.
4. Facilitate Smaller Banks-FinTech Firms Partnership
APIs help smaller banks who may lack the technology or the IT essential for specific features, in partnering with financial technology firms who have such technology. By partnering with companies that can provide enhanced functionality, the smaller banks can grow their brand awareness as well as improve the customer experience.
5. Presents Exciting Opportunities
The regulations like the Payment Services Directive (PSD2) and Access to Accounts (XS2A) brought in by the European Union, are making it mandatory for financial institutions to provide customers and third-party integrators programmatic access (which is API-based in the majority of cases) to their data. These regulations put emphasis on increased customer security and saving customers from hidden fees charged by the providers.
PSD2 aims to break down banks’ monopoly on the data of their users. It allows merchants and businesses like Amazon to retrieve a customer’s data from his bank with his permission.
These regulations will drive technology-driven innovation that will impact banks’ customer relevance and ownership in the future. Also, they will provide an exciting opportunity to innovative third-party providers, including large and most dominant information technology firms and fintech companies as well as existing players like processors, acquirers, payment service providers and innovative banks. All these players can capture revenues which were considered the monopoly of existing financial institutions and banks in particular.
As an entrepreneur, if you want to avail above benefits and capitalize on new and rewarding opportunities available in the banking and financial industry, you should hire ASP Dot Net Developers from an established IT company like Matrid Technologies to integrate the API in your system.
We offer a wide range of high-quality web development services, including but not limited to Dot Net development, PHP development, Laravel development and DotNetNuke Development Services.