How APIs Breathe New Life Into The BFSI Sector

With the advent of development and innovation in API technology, banks, financial service institutions, and insurance companies have stepped up their digitization efforts to enhance customer experience from a service perspective. 

It goes without saying that the COVID-19 pandemic accelerated this digital transformation. As we embrace a digital-first framework post the pandemic, banking & financial institutions have leveraged technology to drive customer satisfaction.

The BFSI industry has witnessed a revolution that is led by innovation in payments by leveraging advanced technologies - mainly APIs. Even tech giants, such as Apple and Google, have explored new verticals by providing payment services. So, long-standing traditional banking and finance institutions can utilize digital transformation to further business growth and boost viability. 

This blog explores how BFSI institutions have accelerated API management, focusing on brand growth and customer satisfaction in the last year. 

APIfication in the BFSI Sector

The term ‘APIfication’ has been thrown around a lot lately. It means to strategize optimal business growth by creating APIs to expose assets to internal and external parties. APIs help in making access to information much easier and boosts the rapid development of new business capabilities. APIfication also significantly increases a brand’s visibility and brings about sophistication in the services offered. 

There are 3 main types of APIs are being deployed by BFSIs at present:

Private API: Private APIs are only accessible within the financial institution and are used to improve internal processes, such as boosting operational efficiency and productivity.

Partner API: A partner API can be accessed by the bank’s preferred third-party partners. Partner APIs facilitate greater expansion through new channels, as compared to private APIs. Such partners include clearinghouses, brokerages, underwriters, and custodian banks. Additionally, they can provide services to customers using the bank’s platform.

Open/Public API: Gaining momentum since 2020, open APIs involve making business data available to third parties. Banks deploy such APIs to generate additional business and grow their customer bases. Open APIs have exceptional use cases when a BFSI company wants to go above and beyond its core services. For example, the banks could enable an API for a loan-comparison app, which would facilitate the acquisition of fresh business from customers shopping for new loans.

The benefits of APIfication are many. We take a look at some of them:

• APIs enable the outsourcing of data and functionalities through a standard interface. This helps in providing seamless services, making better applications, and improving customer experiences.
• APIs increase mobility and developer productivity by allowing an existing feature to be used anywhere, instead of re-creating those features. Using existing features also helps in minimizing application development.
• APIs also eliminate barriers, giving customers easy access to your interface, which allows them to experience the product according to their needs.
• By focusing on analyzing the API services rather than app usability, brands can utilize customer insights in making improvements.
• Automating requests and providing open access to your APIs streamline operations and create and maintain long-term, profitable business relationships.
• APIs allow bank partners to use its infrastructure in offering their own services such as co-branded credit cards, reward programs, and so on. 
• Banks and financial institutions can even establish a secure digital wallet for their customers using APIs through a secure and encrypted environment for maintaining and transmitting sensitive information.
• APIs are key to providing real-time views of transactions and accelerating the timing of targeted offers to buyers via bank and merchant loyalty programs.
• Opening up resources to online banking marketplaces that provide comparisons of loan and insurance rates, credit card offers, require seamless API support.

How 2020-21 Has Changed the Facet of Banking & Finance

Since 2020, the banking and payments sectors have been the ones experiencing limitless API workflows, as they account for the largest segments of the financial industry. Fintech companies transform both the financial and payments industries through APIs, thus enabling virtually any tech company (Apple and Google, for example) to offer financial services directly to their end customers through embedded technology.

API technology can be deemed successful, largely because it can back up its claims by providing evidence in numbers.

• Savings by Application Programming Interface (API) management tools in the banking industry are estimated to reach $3.6 Billion by 2024
• Insider Intelligence projects the revenue potential in the UK through Open Banking-enabled small and medium-sized businesses (SMBs) will reach $2 billion by 2024 – a 25% compound annual growth rate (CAGR).
• A recent survey of financial sector executives stated around 60% of the respondents replied that AI has been deployed at their companies to improve process optimization. 

Apart from APIs, New BFSI trends in the upcoming years include branchless banking facilities, branch in a box, blockchain, cloud computing, process automation, and AI.

2021 Is the Year of Open Banking

Open Banking has become one of the most secure ways for banks to share financial data and services with third-party providers (TPPs) through APIs. Even though it defies one of the core principles of banking - customer information should be protected as a value asset - by sharing the data in open and collaborative ecosystems.

Since APIs have proved to be secure methods of transacting data and customer experiences, Open Banking has become the preferred method of business for the BFSI sector.

Open Banking provides better customer experiences by building brand trust, providing enhanced security, improving payment experiences, and increasing transaction approval rates. As for merchants, API-based banking reduces processing costs, charges no interchange or scheme fees, and also removes chargebacks by making the process seamless and simpler.

More and more countries globally are now making progress with their Open Banking regulations. Of course, different countries have different regulations, and currently, there is no global API regulatory framework. This can lead to complexities when transactions occur and are processed between countries. 

So, businesses are encouraged to integrate with third parties via APIs and licenses to make these global transactions happen. Over the coming years, the movement towards a single API can be expected, providing better access to Open Banking. 

The second driver for Open Banking adoption is innovation in technology. The emergence of APIs and real-time payments means that consumers are now demanding better accessibility, enhanced speed, and more convenience in payments. Now more than ever, banks and other financial institutions need to meet the increasing demand for online and mobile solutions. The big plus is that Open banking can be used as a vehicle for the same. Tech companies are now beginning to work more openly with banks, and their aim is to simplify banking processes and provide greater transparency in the financial services that they provide. We can safely assume that a collaborative ecosystem will only accelerate this digital transformation.

The Future of BFSI Is Secure

Innovation in the BFSI sector through technology looks set to finally fulfill its promise in the years to come. Current banking regulations make access to technology quite slow, and this stalls adoption in many countries. However, due to the ongoing pandemic, the benefits of API-led innovation in banking will be there for all to see. It is only a matter of time before its adoption achieves an increased growth rate.

Fintechs and banks can work together to make this infrastructure more accessible while attempting to alleviate the security threats and data privacy concerns using new technologies. 

The convenience and personalization provided in banking and insurance today offer huge opportunities for consumers and small and medium-sized enterprises, as they look to bounce back from a difficult year that was 2020. It is now finally time for Banking, Financial Services, and Insurance companies to reach their full potential.