APIs and API banking have been receiving a lot of buzz lately, especially with terms like Open Banking and Banking as a Service (BaaS).
If you’re already familiar with the terms and are using these services to optimize your operations and generate business, we applaud you. However, there are still many banks that haven’t jumped on the trend. For some banks, it could be that the rapid momentum and information saturation leaves them feeling discouraged to try anything new. For other banks, they are simply not interested; their current oﬀerings are just enough. However, what we’ve found in conversations with this group is that there are quite a few assumptions about API banking that are misleading.
We want to clear the air. In this article, we explore the common misconceptions dissuading bankers from onboarding API banking and provide tips for tapping into this proﬁtable market. Contrary to what many may believe, API-based banking solutions are not exclusive to major ﬁnancial institutions or the rising neobanks of the world. Small to mid-size banks, particularly community banks, should consider these alternate forms of banking to expand their portfolio and grow their businesses.
COMMON API BANKING MISCONCEPTIONS
The assumptions and misconceptions regarding API banking can easily cloud a banker’s judgement. While many bankers believe they are doing the bank a favor by avoiding the onboarding of and investing in another piece of technology, they are actually missing out on additional revenue opportunities. This is why we must address and debunk the following misconceptions.
Fintechs are competition in the banking industry and should be seen as a threat. Just to be clear, ﬁntechs aren’t your competition, but the banks working with them are. Instead of scoﬃng at the situation, it’s time to get a slice of the pie. Working with ﬁntechs and third-party providers enables you to take advantage of a new channel and increase proﬁtability.
API banking puts data security and customer privacy at risk. While standards and regulations continue to evolve in API banking, it’s not the Wild West. Working with a vendor that has both experience in API technology and the banking industry will ensure that you receive a solution that beneﬁts your bank, keeps your system secure, and your customers’ data protected.
The trend is moving too fast and it’s too late to onboard any sort of API banking options. For one, it’s not too late. And two, you can always start small instead of feeling overwhelmed from being too far behind the competition. Ask yourself if there are simpler operations you can streamline where an API can help. Talk to your core provider about API banking possibilities, speciﬁcally asking about third-party product integrations that could increase your bank’s bottom-line.
WHEN YOU’RE READY, HERE’S WHERE TO START
Have we piqued your interest in API banking? If so, that’s great! But before you run out and start exploring options, here are a few things to consider.
First, know the diﬀerence between terms.
API banking, Open Banking, and BaaS are often used interchangeably, but are not the same thing. Open Banking nd BaaS are examples of API banking. Open Banking allows third party vendors to access shared data to provide insights or trigger payments in an app or ebsite. BaaS, however, accesses the bank’s functionality to oﬀer services or products on their own platform. Amazon oﬀering Amazon Payments is a good example of BaaS.
Create a strategy.
Before onboarding any new product or service, it’s important to ask if either will beneﬁt the bank. Often businesses invest in the latest, shiniest products and end up with low adoption because they’re too complex to use or there is a lack of customer interest. Banks should also include key stakeholders in initial discussions to identify both the opportunities and challenges of onboarding API banking options.
Take caution with big-box vendors.
Many big-box core vendors will boast about having an extensive API library. And while having a sizeable library is very attractive, it all boils down to whether the provider can ﬁnd an API that integrates with your bank’s systems and plays well with third-party providers. Additionally, you must consider (and ask) how frequently they update the API. Broken APIs are common with larger vendors, so making sure to address this upfront will save you from frustration later.
Understand that an API will not solve pre-existing issues.
API banking can certainly optimize your bank’s operations and welcome new revenue opportunities. However, if your bank is operating a decades-old legacy system, then onboarding a new API-based platform may not be so seamless and won’t be able to ﬁx any pre-existing issues with your existing technology stack.
Consider asking an expert for guidance.
API banking technology has its share of beneﬁts for small and mid-size banks, including optimizing staﬀ operations, reducing costs for your bank, and attracting and retaining your customers with new oﬀerings. However, it’s important to note that seeing these beneﬁts won’t come easily without having an expert by your side. If you don’t have an internal resource, ask your core technology partner to make custom recommendations that ﬁt your bank’s needs instead of settling for an oﬀ-the-shelf solution.
At IBT Apps, we know that for bankers to thrive in today’s environment, they must keep up with the pace of technology. This means embracing innovation and welcoming integrated banking experiences that involve API-based solutions.
As a modern core processing and digital banking partner, we equip community banks with the products and services they need to grow their businesses and stay relevant in the industry. Our APIs cater to your bank’s needs, are developed in-house and updated routinely to ensure long-term functionality, and operate in a secure environment to minimize service disruptions and compliance risk.
Whether it’s connecting separate systems in-house or oﬀering online account origination to your customers, we can provide API solutions that make sense to your bank and help generate revenue.