Using APIs in fintech isn’t new – we know this much. But, how they are being used has evolved tremendously. API banking services like “Open Banking” and Banking as a Service (BaaS) entered the industry with a swift force. And while many banks may believe these types of API Banking are exclusive to major financial institutions and rising neobanks, the truth is small to-mid-size businesses can and should be taking advantage of these services to stay competitive and profitable.
For banks to get started with API banking, it can be rather difficult if they don’t have the resources or the expertise. A mere google search will present an incredible amount of information, much of which is outdated and conflicting, leaving those interested in API banking often confused, if not discouraged. In this article, we’re setting the record straight on API banking and addressing a few, basic questions to help break down what’s what and guide you on how to properly get started.
A Few API Banking Questions Answered
What’s the difference between API Banking, Open Banking, and BaaS?
API banking, open banking, and BaaS are often used interchangeably, but they are not the same thing. Open banking and 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 website. BaaS, however, accesses the bank’s functionality to offer services or products on their own platform.
What are the benefits of API Banking to my bank?
Here are just some of the benefits your bank can see from API banking solutions:
- Drives innovation with the adoption of new technology capabilities, which keeps your bank competitive
- Broadens the customer base and increases market share, which boosts profitability
- Attracts and retains your bank’s customers by meeting their demands, which helps build their trust and loyalty
- Creates new revenue streams through new partnerships, which boosts your income
- Relieves the burden on internal IT resources when you work with your core provider
- Eliminates the need to operate disparate systems, which enables faster customer service, promotes work efficiencies, and mitigates human error
Are there any drawbacks to investing in API Banking?
There are no drawbacks per se. However, there are often assumptions that onboarding API banking technology can help resolve pre-existing issues with the bank’s current systems. If your bank is running a legacy core system, it may not be easy to connect a new, API-based platform. You’ll want to consult with your core provider about the integration possibilities as well as the onboarding process and cost.
If I have the staffing resources, can I just develop an API banking platform in-house?
Many banking institutions may want to explore keeping costs low to implement integrated banking solutions and often turn to their own IT teams to get the job done. However, if your team isn’t experienced in API technology, it may cost more time and resources to complete, and at the end of the day you may not be certain if the integration will work according to plan. The risk just isn’t worth it. It’s better to turn to a trusted core provider that has the right fintech partnerships to ensure your needs are met from the start.
How would I know if my core provider can support API banking?
With any new product or service you want to onboard, you always want to first have a discussion with your current core provider about API-based solutions. For example, if your institution is looking to build a mobile app, you may ask your core provider if they have a partner offering this product already. If they have something in place, make sure you ask for details on how it all works, what the cost would be to onboard, and what the cost would be moving forward. If possible, ask for a reference to contact another institution that is using the same product.
Are there other considerations I should know about when exploring API banking?
If your core provider can help you with API-based solutions, that’s great news! But, if you find that they either cannot support an API platform or that it would be too expensive to implement, you may start seeking other options, which may include a new core provider. If this is the case, just beware of those that boast about large API libraries. While it may seem attractive, it boils down to whether they have an API that integrates with your bank’s system and plays well with third-party providers. What good is a big library if the provider doesn’t have what you need?
What’s the best place to start if I want to move forward?
First and foremost, develop a strategy with your key stakeholders. This will help you focus on what your bank’s needs are, the possible solutions, budget, and resources. If a bank is looking to grow their business in five years, how will services like Open Banking or BaaS help them achieve their goal?
Mckinsey & Company has some great questions for banks to ask themselves before even starting discussions with their core provider. Take a look at them and discuss internally before connecting with your core provider.
Learn How IBT Apps is supporting community banks with API Banking.
At IBT Apps, we know that for bankers to thrive in today’s competitive 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 increase your bottom-line.
Get started with API banking. Contact us today to discuss your options.
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