Traditional banks have legacy technology systems that have proven themselves and built trust over many decades. Banks’ reluctance to engage with newer, disruptive technologies is understandable: Their hard-earned reputation is at stake, so any change in their tech stack would need to be thoroughly vetted and carefully implemented.
On the other hand, challenger banks are much more agile, and open to deploying new tech. Having said that, they still need to put in place an extremely robust security framework – it takes one lone case of data breaching to consternate customers, particularly if the bank has little to no track record.
In this context, how can banks ensure the highest level of security, control, compliance and other mandatory requirements yet implement new solutions that are flexible, adaptable, open and scalable?
Banks are changing, but with caution
Many proponents call for the phasing out of legacy banking technologies, pointing to the operational costs of upkeep and complexities inherited from a bygone era. According to KPMG’s Banking Systems Survey 2017/2018, which looked at Dutch banks, “large banks seem to have shifted their focus from replacing their +30 year-old mainframe core banking systems into further development of these systems.”
This points to a best-of-breed strategy, wherein banks combine their well-trusted back end systems with middleware tools to enable front-end agility. This allows banks to change different sub-systems or functionalities on a case-by-case situation, instead of overhauling their systems altogether. To that end, Software as a Service (SaaS) solutions, in particular, are being increasingly adopted by banks;
Through the use of APIs to simplify integration, SaaS enables quick implementation of new services while avoiding the risks of changing legacy code and processes. As Danny Healy, financial technology evangelist at MuleSoft, states, “APIs will emerge as the preferred solution acting as a central mechanism for enabling the integration that banks require.”
It’s an API world
There are numerous banking APIs that are available now; Programmable Web lists 429 different banking APIs. Note this does not include private APIs, which are internal to a specific bank. What are some solutions that APIs can help deliver?
One of the biggest pain points for customer acquisition is the sign-up process; a slow, cumbersome process leads to high abandonment rates and adds cost. According to a FICO study, 22 percent of users would abandon an online bank application if they are required to visit a branch or use the phone to complete the process. APIs, such as Trulioo’s GlobalGateway, allow identity verification to be completed entirely online, improving the onboarding experience, lowering costs and the rate of abandonment.
Building and delivering new services can be a protracted and costly experience. With APIs, new services are quickly tested in a sandbox environment – and, if they deliver as promised, a more thorough vetting occurs. This vetting process, too, is quick and reliable because APIs allow you to tightly control the transfer of data. As the number of APIs grow, the scope and variety of services that banks can offer their customers will also grow.
While the ability to offer numerous services is advantageous for consumers and the bank’s bottom-line, offering too many services and confusing the customer base helps no one. Using AI and advanced data analysis techniques, banks can determine the most appropriate, targeted services, on a personal level.
Combining the ability of new API powered services with customization will increase retention, optimize revenue possibilities, and create a better banking experience overall.
Voice or chat APIs allow customers to access their data in more interactive ways, creating a more valuable customer experience.
As open banking becomes a reality, regulators expect APIs to play a transformative role in changing the banking landscape. Stimulating competition in the banking industry, allowing customers more access to a variety of financial solutions and services, along with more ownership of their data – these goals are best realized via the use of APIs. Indeed, for banks to retain their prominent position in the financial landscape, APIs are a natural way forward.
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