Banks have been using APIs internally to tap into legacy systems for years; it’s estimated that 75% of APIs used in banking are used for internal purposes. While APIs are indeed a path to modernizing legacy architecture, they’re also increasingly strategically important to the business side of banking.
As my colleague Laurent Van Huffel pointed out recently, Gen Z will make up 27% of the workforce by 2025 and are much less loyal than their parents. Banks and credit unions need to attract this vital demographic, and open banking APIs are a formidable opportunity for them to do so.
Here’s a look at why banks should focus more on exposing APIs externally now, and how curating them in an API marketplace helps ensure they draw real value from these digital assets.
Expanding financial data beyond the bank’s perimeter
A recent McKinsey global survey of IT executives found that 88% believe APIs are more important in the last two years. As APIs have more commonly been used for internal processes until now, shifting to external processes makes management APIs more complex. This can drive some hesitation among banks and credit unions, but it shouldn’t put the brakes on your external API program.
Many global banks have been required to expose their APIs externally due to regulations such as Open Banking in the UK or PSD2 in Europe. The predominant use case there was payments, while adoption of APIs outside the payments use case has stalled.
The U.S. took a different path. The market did not wait for regulation to drive sharing of customer data with third party providers, and a rich fintech universe emerged to offer new capabilities.
Unfortunately, absent any regulation, the easy route for the fintechs was to use screen scraping instead of secure APIs to grab customer data from financial institutions. Customers were obliged to give their log in credentials to a third party if they wanted to take advantage of the third-parties services.
The movement away from screen scraping in North America has been significant the last few years, with Canadian regulatory moves explicitly targeting the elimination of screen scraping, and the U.S. Consumer Financial Protection Bureau (CFPB) also seeking to move away from risky data collection practices.
Today, the CFPB estimates that about half of third-party data access currently occurs through APIs, with scraping comprising the bulk of the balance. This is a significant shift since as recently as 2021, most access was via screen scraping. The CFPB attributes much of this progress to the largest data providers.
In October 2023, the CFPB announced proposed rules surrounding the use of consumer data. This includes requiring depository and non-depository financial institutions to provide a public API so that consumers can opt to have their financial data shared with another provider.
Realizing the value of financial data APIs with a marketplace
Whether from regulatory requirements or market moves, banks and credit unions find themselves needing to expose APIs both internally and externally. As mentioned above, this brings added complexity as well. What is the solution?
Amplify Enterprise Marketplace makes it possible for financial institutions to curate and monetize their APIs in a central marketplace, simplifying API adoption and getting digital services to the market faster.
An API marketplace makes it possible to realize the true value of open banking by:
- Providing an intuitive, prebuilt API developer experience that consolidates all your APIs for rapid adoption
- Shortening time to market with ability to white-labeled to your corporate branding
- Offering common business metrics for all API assets regardless of type, deployment, or platform
It also helps to ensure greater security because it discovers unmanaged APIs and automates identification of non-compliance services. Select and promote only approved, curated assets for inclusion in your marketplace, then leverage prebuilt security policies or customize your own to protect your business.
Here are few ways APIs exposed on a marketplace can help grow digital business revenues in financial services.
Opening up data makes it possible to monetize banking services. For example, in Banking-as-a-Service, a bank offers up specific capabilities or products to other financial institutions or enterprises.
Merge and enrich data
Because an API marketplace brings all your data into one central view, you can gain insights to provide customers with data-driven financial decisions. For example, a credit union can reinforce their customer relationship beyond face-to-face interaction by understanding critical financial milestones like buying a house or getting married and target the appropriate real-time financial advice.
Open digital processes
Publishing APIs in a marketplace makes it easier to engage with the fintech community. Financial institutions can now offer new products and services to customers with third-party providers while staying relevant to the customer.
This is another valuable use case scenario in open banking, allowing non-financial service providers to offer financial services. This could look like embedded lending, eliminating the need to go directly to a bank for a loan and instead applying for the loan at the point of purchase.
Adopting APIs only to use them for internal purposes would be a missed opportunity to drive new sources of revenue. As the industry moves more and more toward exposing APIs externally, Axway’s experts and the Amplify Platform can help you draw real value from the assets you already have.
Learn more about tapping into the full power of open banking APIs.