FinTech Continues to Disrupt the Digital API Economy. What's Next?

The emerging sector of financial services technology, FinTech, signifies a major shift in the API economy. APIs are fundamental, not only to technology strategy, but overall business strategy. As we monitor how APIs continue to play an important role in the financial institutions' digital strategies, we can examine a few key reasons as to why these firms need to quickly execute before they are left behind the competition.

Regulatory Pressure on Financial Institutions

New regulations, such as PSD2 in Europe, demand banks and financial institutions to work within the financial technology, and support openness and cooperation. The payment service directive is a new era of banking regulation. The purpose of PSD2 is to create a safer and more innovative payment ecosystem across the EU, make cross-border payments as easy, efficient and secure as possible, and increase competition and choice for consumers. All three of these points are rooted in the face that the demand for the financial industry is innovating their technology infrastructure.

Collaboration and Engagement With Fintech

Maybe a better word that collaboration is cooperation. It's imperative that as the Fintech space grows, financial institutions find ways to cooperate with new technology and inject their value across third-party services. This innovation encourages the industry as a whole to flourish and grow, driving more transactions and additional banking use cases. Top of mind as financial institutions look for the opportunity to collaborate is API security. Secure API access to systems that were once closed, may be costly and expose financial institutions to additional risk. That said, the opportunity should justify the investment required.

Building New Digital Products

There is no question in buying behavior - the API economy is leading to best-in-breed applications, which are offering better solutions to match need and better pricing for end users. This is exactly how FinTech is disrupting the traditional financial instructions in a rapidly expanding and changing competitive landscape. Emerging sectors, such as alternative lending, online banking, payment are just a few to name as relatively new startups disrupting the financial services space.

Image Source: Venture Scanner Report 2017.

For example, digital check deposit has become a must-have feature in the U.S. market, and real-time, global payments are key for B2B banking. APIs are the building blocks for these new digital products, providing a reusable service layer that turns legacy systems into developer-friendly platforms.

Today, it's generally agreed upon that FinTech firms are playing a significant role in shaping the banking platforms of the future. But the FinTech firms are lacking the customer base of the banking industry, thus giving the more traditional financial institutions stability, trust and experience with regulation and compliance requirements. Banks must transform into platforms; and FinTech must brace for an upward hill battle of security, governance, and regulation.

"To be truly digital, banks must pair an emphasis on customer-facing capabilities with investment in the technical, architectural, analytic and organizational foundations that enable participation in the financial services ecosystem." -Gartner, Hype Cycle for Digital Banking Transformation, 2015

What's Next?

Today's predictions around growth and opportunity are little more than informed opinion. As data begins to pile in, we can see clearly new patterns for how objectives and tactics will form around adoption of API solutions.

API Strategy boils back down to a fundamental issue when defining the business case for API services is that of volume: how many people will sign-up, how many third-party developers, how many apps, how many API calls, etc.?

In other industries, simply opening up an API and waiting for developers to come doesn't work. Adoption must be driven, and this often means shifting the burden of integrating APIs away from customers and developers by offering pre-built integration templates and workflows between products helps customers to understand what's possible.

Banking is an "always on" industry. It is vital that a financial institution's infrastructure supports 24/7 API availability with zero downtime. The performance of the API platform will impact the end-user experience. Badly performing APIs lead to lower customer satisfaction and this not only impacts the service third parties are able to provide around the APIs, but also has a negative effect on a bank's reputation.