Enhancing the digital experience through APIs

One outgrowth of open banking—the concept of securely sharing financial information and data between financial institutions and other third parties using standardized APIs—is the ability for banks and credit unions to take advantage of the flourishing fintech ecosystem to enhance their customer-facing capabilities. 

While traditional financial institutions initially viewed the rise of fintechs as a threat given their ability to provide new, value-added services, today’s institutions recognize the benefits of partnership. In fact, Cornerstone Advisors reports that nearly 70% of bankers consider partnership a key part of their 2023 strategy. As of 2022, 40% of financial institutions had already invested in or deployed APIs, with another 28% planning to do so in 2023. 

A primary benefit of APIs is the ability for financial institutions to deliver an elevated online and mobile banking experience that includes new, in demand features—without the need to build these capabilities themselves. By leveraging APIs from digital banking platforms and fintech partnerships, even the smallest community bank or credit union can keep up with the ever-growing expectations of consumers and businesses. 

THE PROLIFERATION OF APIS 

In simplest terms, an API, or application programming interface, is a software interface used by different software systems to communicate with each other securely. Today’s consumers unknowingly encounter numerous APIs throughout their modern lives. A “smart” TV, for example, uses APIs to stream content from services like Netflix and Hulu. Likewise, apps on mobile devices are powered by this technology. 

In digital banking, financial institutions can partner with third parties to integrate complementary services into their own offerings using APIs. By accessing a range of financial services through a single platform, users benefit from an enhanced experience that can build brand loyalty. There are many ways APIs can enhance the digital banking experience, including the following: 

ACCOUNT AGGREGATION 

Gone are the days when individuals conducted all banking with a single institution. In fact, the average American has more than five different financial accounts. Financial institutions can provide users with a holistic view of their finances by helping them consolidate and view accounts from multiple institutions within their own digital banking solution. 

Having a one-stop shop for all account information goes a long way toward helping a bank or credit union become a user’s primary institution—and using APIs as the underlying technology provides a durable, robust and secure way to access this disparate account data. Older account aggregation technology relies on screen scraping to copy or “scrape” account data, mimicking how a user would access an account—a fragile process that requires updates whenever a website changes. APIs provide a more future-proof solution by accessing account information through programming interfaces that do not change. 

DIGITAL ACCOUNT OPENING 

In today’s digital world, enabling consumers and businesses to open accounts online is critical for financial institutions to remain viable. Community and regional institutions in particular face competition from large, national brands as well as new, online-only institutions, making a digital account opening (DAO) option table stakes. The latest DAO technology enables consumers and businesses to open and fund an account in mere minutes. 

These solutions use services from a number of third parties, including identity verification, Know Your Customer, external account verification and fraud protection providers, among others. Using APIs, all of these can be securely connected within a single DAO process. Because of the abstractions that DAO APIs provide, a financial institution also has significant flexibility when choosing third-party providers. APIs make it possible for the institution to use one preferred fraud protection provider over another. The result is a fast, seamless and secure account opening experience tailored to a given institution’s needs. 

BEST-OF-BREED FEATURES 

Financial institutions can leverage APIs to offer best-of-breed capabilities that are most aligned with their unique user base. Beyond basic capabilities like viewing account balances and making transfers, features like financial health tools can help consumers manage spending, create budgets, learn about savings opportunities and track goals. 

Banks and credit unions can also provide faster, more convenient payment options through payment APIs, allowing users to initiate payments directly from their accounts. Additionally, institutions can leverage real time payment systems to offer instant payments, improving transaction speed and efficiency. 

P2P—or peer-to-peer—payment options have also grown in popularity, particularly among younger consumers. Financial institutions can leverage APIs to enable P2P options from within their digital banking solution, giving their customers a convenient and trusted alternative to other third-party P2P options. 

As consumers and businesses embrace digital banking, another feature that has grown in importance is the ability to deliver enhanced support. Institutions can now take advantage of sophisticated tools that use APIs to deliver support via a wide range of communication options, including chat, video, text and screen sharing. 

PERSONALIZED RECOMMENDATIONS AND INSIGHTS 

The latest data analytics tools leverage APIs to access a wide range of financial data, providing institutions with a better foundation for understanding user preferences, spending patterns and financial goals. Using these insights, banks and credit unions can provide tailored recommendations for financial products, such as loans, credit cards or investment opportunities. 

Business users can also benefit from APIs that connect their accounting software package to their digital business banking solution. Businesses gain insights into their cash flow, revenue and profitability. At the same time, financial institutions can better understand these businesses’ current and projected financial health. 

NEW CHANNEL OPPORTUNITIES 

APIs have opened up new possibilities for banks and credit unions to embed financial capabilities within third-party partner software. By adding various banking services—such as opening an account, viewing balances or making transfers—to nonfinancial websites or apps, institutions can reach users digitally and grow these relationships through an entirely new channel. 

Embedded banking partnership opportunities are numerous. Among them is adding banking functions to software used by medical or dental practices or travel agencies. By adding these capabilities to software that office personnel are already using, embedded banking eliminates the need for users to switch to their financial institution’s website or app.  

Another example is adding banking capabilities to a college or university’s student portal. Enabling students to open a new checking account or pay tuition from within their university’s software delivers added convenience to students and parents while providing an opportunity for the financial institution to grow beyond its existing digital footprint. 

A NEW LEVEL OF INNOVATION 

APIs have truly reshaped the banking landscape, allowing financial institutions to elevate the digital banking experience for users through fintech partnerships. In an increasingly competitive market, a digital banking platform designed to take advantage of APIs can result in a level of innovation that was previously out of reach for many banks and credit unions. Those who take advantage of this opportunity are poised to deliver a more efficient, personalized and convenient digital banking experience, and, by extension, benefit from increased loyalty and business growth. 

David Biesack is chief API officer at Apiture.