Consumers are demanding a superior customer service experience from their banking institutions today. Digital applications are grabbing a significant share of transactions because it is a frictionless way to manage money.
This preference for self-service is creating several new touchpoints in the banking industry. That means financial technology firms are entering the marketplace to assist institutions and their customers. If these efforts are going to find ongoing success, then open APIs must be made available.
Three Types of APIs Exist Today
APIs are Application Programming Interfaces. An API is a software intermediary that permits two apps to speak with each other. It is a gateway that leads to contextual solutions that would be difficult to offer without their presence.
Three different types of APIs currently exist in the banking industry.
The first is a private API. This structure is in the traditional banking systems to reduce friction while improving operational efficiencies. Most institutions use them in some way today if they operate a physical branch.
The next option to consider is the partner API. It enables an expansion of product lines, channels, and communication efforts. These interfaces are usually between the bank and a specific third-party provider.
As for the final choice, open APIs make data available to third-party providers that do not have a formal relationship with the bank. Although that structure creates more opportunities for innovation, it also creates more security concerns to manage.
According to Deltec Bank, “The fintech industry and the banking sector see the traditional institution as being the primary channel for consumer-based financial services.” The question these partnerships must answer involves whether the commercial agencies are the best ones to control distribution and innovation – or if that would be better left to firms in the technology segment.
Why Are Banks Are Looking at Open APIs?
Open APIs provide the banking industry to gather actionable data from a variety of sources. That means there is access to data about risk tolerance, financial goals, and buying habits for individual customers. Some fintech providers can even offer information about social interactions.
Even though there is an increased security risk associated with open APIs, the benefits of gleaning insights from this data outweigh whatever disadvantages exist. It allows a bank to become proactive instead of relying on reactive responses when generating a personalized approach to each customer.
Vertical enhancement is one path to take when using the open API approach. The potential of open banking extends into many facets of life. When institutions open their Application, Programming Interfaces to the global community, then web developers have a chance to tap into an incredible amount of creativity and innovation.
Open APIs create an opportunity to develop non-financial products and services for banks to feature. It diversifies the revenue streams available to the institution while enhancing the customer service experience.
The foundation of the partnerships between banks and fintech providers is the collected data that these firms cultivate to benefit future customers. When this approach receives the diligent attention it deserves, then the improvement in brand experiences could be the difference between keeping consumers or losing them.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management