COMMENTARY: Time for Banks to Embrace Fintechs to Move to Partner APIs

Customer experiences and expectations are rapidly evolving as people and businesses seek out slicker financial apps and services that are embedded deeper into our software applications. This explosion of new experiences is largely enabled through application programming interfaces (APIs). Seeing a new opportunity here, many financial institutions are investing in their API strategies. 

Simply put, an API is predominantly software that speaks to other software. An example can be seen with PSD2 and open banking, which have already been in effect for three years in the United Kingdom, encouraging institutions to utilize API data. In the United States, by contrast, banks generally offer limited, private APIs, so the gap in market opportunities for clients will continue to grow between banks that opt for private instead of shared APIs.

The wider the range of tools a bank has on its side, the more creative and seamless other software applications that rely on them can be. Internally, APIs likely power a bank’s mobile and Web user experiences. Externally, they are an essential tool for FIs to integrate their banking services with other platforms. 

Open APIs create the opportunity for more innovative solutions, likely developed either by banks or fintechs. But the most successful solutions are created through a bank-fintech partnership. As more U.S. banks transition from private to partner APIs, they add exponential value they can offer to their business clients through new products that increase operating efficiency and improve the customer experience. 

In recent years, banks have realized they need better features for seamless banking. And, lately, the pandemic has also accelerated the digitization of experiences in retail banking. But business banking needs to become more digital, as well. Through digitization, banks can add value to their services by helping their clients save time by reducing costs. They can also give their clients a better, more personalized banking experience. 

McKinsey suggests that customer expectations are being redefined as they now expect a direct solution, personalized to their needs. It is more important than ever for commercial banks to adapt, adopt, and take action to address their clients’ needs.

Open APIs increase data sharing and communication between applications, which enables banks to issue a new set of products to customers. This connectivity and data integration provides the infrastructure required for contextual business banking to thrive. If banks embrace open APIs, they can work with partners and bring banking products directly to new clients. Additionally, banks will benefit from a better understanding of customer interactions and preferences. Here, too, transitioning from private to partner APIs will help FIs move towards a modernized, embedded experience. 

Financial institutions are currently investing in API strategies to save time and money for banks and their clients, but we’re not seeing widespread focus on personalization of the client’s banking experience. Fintechs that do focus on personalization and experience are viewed as banks’ competitors when they don’t have to be. Instead, banks should consider partnering with fintechs to offer new and improved experiences to their customers themselves.

As FIs embrace open APIs, they can benefit from partnering with a fintech that has already built a foundation upon APIs to improve connectivity. By using APIs, banks can focus on creating new solutions for their corporate clients while also offering better, more agile tools.

Partner APIs can help banks emerge as innovation leaders through their investment in integration, experience, and value. Integration and the partnership process does require a significant time investment, but the time that bank partners spend helping integrate your banking services into different platforms is still less time than it would take for the bank to develop it themselves. That same time investment from the bank also leads to countless saved hours for their business clients, increasing your value as their business bank.

FIs that prioritize their API strategies, use API suites, and partner with a fintech will improve their commercial banking services through increased integration and collaboration.  

Financial institutions need to start embracing the idea of open APIs. They can start with partner APIs and by working with a fintech. U.S. banks should keep an open mind as to what could be possible, and recognize that open APIs are the future of banking.

—Clayton Weir is chief strategy officer at FISPAN Services Inc., Vancouver, British Columbia.