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How are APIs spearheading the banking sector’s evolution?

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By Milan Ganatra, Founder and CEO, 1SilverBullet

When we think about banking and fintech, we think of it as an ecosystem driven solely by technology; mechanical in nature and devoid of any human traits. But if we were to speak in personification, technology, when designed well, is all about finding connections and fostering seamless communication. And this is exactly what APIs are doing. An application Programming Interface or API is a set of protocols and tools that allow secure communication and exchange of data between two applications. In the context of banking, APIs allow banks to share their core banking services and data with third-party fintech companies, which can then use the data to enhance their services and improve the customer experience. This integration between banks and fintech companies is revolutionising the way financial operations are carried out because it is almost as if APIs are enabling two previously unconnected systems to talk and communicate in synergy, ultimately making the banking process more convenient and efficient for users.

Currently, large banks are using APIs in two different ways – as consumers and as publishers.

Leveraging The Power Of APIs Via Consumption

On the consumer side, banks are using APIs to serve their clients across financial and non-financial products and services.

1. Streamline customer onboarding processes: Banks can automate the customer onboarding process, requiring less time and effort to complete, by linking their systems with online identity verification APIs. Better customer service and quicker account activation result from this. For instance, the India Stack, a collection of APIs that allow access to various government services including e-KYC (Know Your Customer) and e-Sign, has been adopted by Indian banks. This helps to reduce the amount of time and effort needed to complete the onboarding process.

2. Reduce customer delinquencies: Banks are also actively using APIs to obtain real-time data on a customer’s creditworthiness and risk profile using credit scoring APIs to reduce customer delinquencies such as non-payment of loans. This lowers the risk of consumer default and enables them to make more informed and data-driven loan selections.

3. Improve intelligence of lending procedures: Similarly, banks, for instance, can make better loan application judgments by connecting with financial data APIs to obtain a more full view of a customer’s financial status.

4. Add value to their core business operations: Banks can also link with financial planning and investing APIs to deliver value-added services such as individualised financial planning, investment guidance, and portfolio management. This adds value to their core business activities and helps banks to expand their ambit of services.

5. Banks becoming a SUPER APP : APIs can also enable banks to branch out into providing non-traditional / financial services such as shopping by integrating with e-commerce APIs, enabling them to buy goods straight from the bank’s platform. This makes it possible for banks to move a notch up and work towards becoming a one-stop solution for customers’ financial and non-financial needs.

6. Broaden horizons to incorporate additional financial goods: In addition to incorporating e-commerce, banks can also use APIs to anticipate and provide for their clients’ ancillary financial needs. This can include insurance products such as life insurance, health insurance, and property insurance. By doing this, banks can enhance customer retention and diversify their sources of income.

These myriad ways of consuming APIs are thus allowing banks to compete with Fintechs and become more like financial supermarkets, selling both banking and non-banking products and services.

Publishing APIs To Increase The Reach Of Their Products

Meanwhile, on the publishing side, banks are increasingly using APIs as a way to expand their services and reach new customers. By publishing APIs, banks can partner with other businesses, such as fintech companies and neo-banks, to integrate their services and offer a wider range of products and services. This allows banks to leverage the expertise and reach of these other companies, enabling them to expand their customer base and increase their product offerings.

For example, a neo-bank may want to offer its customers access to bank fixed deposits. To do this, the neo-bank needs to integrate with a bank that offers these products. By publishing its APIs, the bank makes it possible for the neo-bank to offer its customers access to these products through its own app. This not only expands the reach of the bank’s services but also enhances the customer experience, as the neo-bank can offer its customers a seamless experience of accessing banking products through a single app.

In conclusion, it wouldn’t be an understatement to say that the banking sector is one of the biggest beneficiaries of APIs because banks are now able to expand their services and product offerings through the integration of APIs from fintech and wealth tech companies. This, coupled with the bank’s ability to publish APIs that enable other businesses to integrate their services with the bank, is a huge advantage which leads to an expansion of the bank’s reach and distribution network. Also, as trusted institutions, banks naturally attract a large number of customers, and with the use of AI APIs, they are going to continue to be able to make personalised product recommendations to their customer pool. Thus, overall, the API economy is already proving to be a huge boon for the banking industry and will continue to propel a steady evolution in the years to come.

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