Four questions on APIs and the future of banking
Banking and APIs seem to be top of mind these days. That naturally leads to questions — ranging from what people mean by bank data APIs to what the practical implications of them are. A couple years ago, I participated in a panel on APIs by Silicon Valley Bank and condensed my answers to some of the questions below:
What is API banking? Why is this relevant now?
It’s important to remember that every bank has — and has long had — APIs. An API is just a set a protocols, logic, and tools that allows developers to be able to programmatically interact with banking solutions and functionality, without having to interact directly with the bank’s back-end systems. The distinction in what’s being debated today (APIs used for fintech) and what has long existed is how open these APIs are, and whether they enable external access of any kind.
The key isn’t just to focus on the APIs, but rather the entire tool kit and infrastructure that developers rely upon to build on top of legacy banking infrastructure.
How big an advantage is it that many FinTech companies are not burdened with legacy infrastructure and can build from modern technology stacks?
At the end of the day, there is some sort of legacy banking technology behind every new, technology-powered solution in the financial market.
The big challenge today is marrying the old with the new, and making sure that that legacy infrastructure isn’t restrictive from an innovation perspective or insecure from an infosec best practices point of view.
Financial institutions are realizing that they need focus on a different sort of innovation. Financial technology startups tend to be very good at taking thinly sliced vertical problems and trying to make the customer experience as frictionless as possible.
The key to unlocking that innovative potential is by lowering the barriers to entry to make the development experience as frictionless as possible, while still maintaining necessary compliance and regulatory obligations in place. The cycle of innovation is getting shorter and the only way to move and innovate quickly is by creating the right framework and tools for rapid development.
What are some of the most effective strategies to building strong and sustaining partnerships with a financial institution to find win-win opportunities?
In some ways, you can make the analogy that major banks are a bit like giant ships. Many that exist today are the result of many, many years of acquisitions, mergers, and divestitures.
The strategy of solutions that a bank wants to provide to clients has often times already been decided years ago, and it can be extremely difficult to drastically change that roadmap.
As a partner, you can either be an “iceberg” and cause conflict and drastic decisions, or you can be a “current” and try to influence and guide.
I think the ideal path is to be the current. Developing new products in financial services is often very complicated due to the amount of regulations and infrastructure complexities involved. By acting as a gatekeeper in partnership with the banks, fintech companies can ensure that steps are taken with security, compliance, and consumer interest in mind.
Three years from now, just how transformative do you think API banking will be, and how much will it potentially change how traditional financial services are delivered and consumed?
The bank that can figure out how to effectively offer APIs for their services through partnerships will be the bank of the future.
Bank accounts were inherently not built for the web and the customer experience is going to be extremely different three years from now. 10 years ago, online banking was a nice to have, not a necessity, and the key to success is being able to continue to offer differentiated customer experiences by making it as easy as possible for developers to just build.
