The role of the API has been expanding rapidly because they enable developers to utilize innovative services developed by others, but also because APIs enable developers to provide their software solutions to other members of the cloud. Delivering solutions this way does however demand new approaches to both security and managing system performance. This article in American Banker discusses some of these attributes:
“Banks generally agree that these forces are driving the industry’s digital transformation. But the connective tissue under it all is the application programming interface.
APIs allow companies to connect and share data more easily. They are only going to be become a bigger force in the industry — and all industries for that matter — as time goes on.
“Within five years it will be difficult to distinguish between what is an API strategy versus what is just a financial services strategy, or the mobile opportunity from the API opportunity,” said Rob Berini at the consulting firm Genpact.
Banks have been using APIs for about 15 years, but those have been internally focused and intended to make it easier for software programs to work together. Today’s focus on APIs involves outsiders.
By using an open API, companies can build and design programs on top of an interface, saving time, money and other resources. Uber’s map, for example, uses the Google Maps API. Getting Uber to market didn’t involve building an entire mobile app, just focusing on the marketplace and payments platform (and putting some cars on the map).
Open APIs are table stakes in the advancement of mobile services. With people constantly glued to their phones, mobile is at the heart of the digital-physical convergence happening across industries. This need to allow third parties to seamlessly access bank data will grow as consumers demand new ways to access their money, such as asking Amazon Echo for a bank balance or connecting to a Nest thermostat on the Internet of Things.
“That’s the transition we’re seeing,” said Secil Watson, the head of wholesale internet solutions at Wells Fargo. She pointed out that by 2020 there are expected to be 50 billion connected smart devices.
“APIs are a way to open that door for us. … I’m not going to have an app that sits on Nest just so a company can pay their power provider more efficiently, but I will definitely have APIs that they can use to create a product or augment a product.” Her department has created an API channel for its customers to set up their enterprise resource planning systems with Wells’ online banking.
Wells’ tiptoeing into open APIs by offering them to commercial customers is typical of banks, which see such clients as the test case. Consumer applications hold the greater opportunity, but also carry more risk given cybersecurity and data issues.
Still, most banks believe they need to partner with fintech companies in the form of collaboration or investment instead of trying to compete with or acquire them, as part of their digital transformation. For this kind of collaboration to work, however, banks need to have a robust system of APIs that enable them to plug into the fintech startups they want in their marketplace or ecosystem.
“I don’t quite understand how an API strategy could be anything but a core part of your financial services strategy,” said Likhit Wagle, general manager of IBM Global Banking & Financial Markets.
But it is not merely a tech issue, Wagle said. The banks also need to open APIs in a way that won’t run afoul of regulators.
This is where IBM is doing a lot of work, he said. Bluemix, IBM’s cloud-based development environment, and its partners aim to help banks to identify which fintechs they want to integrate with, ensure those startups meet regulatory requirements and integrate them into the banking platform without much complicated, expensive integration work, he said.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
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