Traditional banks are continuing to advance digital transformation initiatives to compete with fintech companies, neobanks, and digital banks. Open banking is integral to supporting the data-sharing ecosystem that enables delivering on digital banking’s promise to meet customers’ expectations for a 24/7, on-demand, and seamless experience.
Leveraging application programming interface (API) technology to enable open banking is a central element of customer-focused service innovation; APIs help establish the necessary connectivity for external partners to access customers’ account data (after authorization). The burgeoning API ecosystem being developed by both banks and fintech (and software) organizations is leading to new types of financial services that leverage customer data.
Architecture Must Support APIs
Open banking is no longer primarily about regulatory compliance—it’s about how organizations create the foundation for digital customer interactions and service model evolution. APIs are integral to establishing new business models and services that deliver personalized digital experiences.
There are certain digital, data, and architectural components that require configuration in order to fully leverage APIs—both internally and externally—for both open banking regulatory compliance and innovation. For example, customer identity management and authentication processes must be consistent across all product areas, including new financial offerings delivered via fintech partnerships.
Enterprise architecture must also be designed to facilitate APIs that enable fintech startups and third-party providers to communicate with the bank in handling a range of digital services and processes, such as embedded banking, account transactions, and customer onboarding. Appropriate monitoring services, such as fraud monitoring, Know Your Customer (KYC), and anti-money laundering (AML), must work seamlessly across the extended technology ecosystem.
New Activities Are Needed to Capture API Benefits
As I state in my latest report CIO/CTO Checklist: Open Banking Standards and Impact on API Development, “APIs have created new activities CIOs and CTOs need to do or accomplish to fully obtain the benefits of APIs.”
These include architecture mapping to regulatory requirements; customer identity, consent management, and data management across all applications where customer data is shared; validation of APIs for fintech partner-delivered services (e.g., digital payments and account originations); and performance metrics captured on API utilization and revenue generation.
Bank IT leaders should focus on a handful of key actions considering all of these areas when building out APIs that enable integration with fintech partners to deliver new digital services and comply with existing open banking regulations.
CIO/CTO Best Practices Checklist
To assist bank CIOs and CTOs in leading initiatives to build an API ecosystem (internal and external) that facilitates innovation, Aite-Novarica Group has identified six best practices. They are summarized in the table below:
The checklist outlined in this table and in my latest report helps IT leaders focus on the critical actions for leveraging APIs to establish new business models and digital customer experiences.
How We Support Bank IT Leaders
Open banking is driving the reinvention of banking business models through fintech partnerships. Successfully introducing new digital banking services and personalized customer experiences via these partnerships depends on how fast banks accelerate their API development to enable the connectivity required.
Exclusively for Financial Services CIO/CTO Advisory Practice member executives, bank IT leaders can use these best practices to prioritize key actions that ramp up development of their organization’s API ecosystem.
Interested in learning more about how you can use these insights to accelerate API development for innovation and open banking adoption?
Tell us how we can help >> Email me, and I’ll reach out to schedule a conversation on how our API development practices can be applied at your organization and introduce the practice.