How Digitally Innovative Banks Leverage the Power of APIs

Understanding the importance of APIs — application programming interfaces — to improve digital functionality is critical to seeing how the banking industry can continue to evolve.

Delivering consistent service requires having technology in place to carry out the entire process. Yet the banking industry has generally only addressed new channels incrementally, by adding new applications to handle customer engagement and servicing functions within the channel itself. This approach means call centers have their own processes, as do branches and consumer self-service apps — and the systems don’t communicate with each other. This results in inconsistent service and experiences, producing frustration for customers.

Busting Digital Boundaries:

A new architecture is required to break banking silos and bring processes and products together in a common framework. Getting the right pieces in place from core to customer is essential.

Something that compounds servicing inconsistencies based on siloed banking channels is that many products live in their own core “systems of record” (SOR) and surrounding technology ecosystem. (A system of record represents the authoritative source of particular type of data in a given area.) Within each system of record, fulfillment and servicing are dissimilar and disconnected.

This issue has become more apparent since the pandemic accelerated changes in consumer banking behavior. The app that allows a consumer to look at banking transactions and pay bills online does not see their credit card or mortgage at the same bank.

Many of the legacy core systems were written “monolithic,” making everything around them purpose-built for that core. They were built for an age of branch banking. Everything else has been a struggle for those cores because they lack the ability to deliver services right to a mobile phone.

Banks that want to remain competitive must identify how to unify and orchestrate operations, customer engagement and processes for all products and channels. Having a unified system is arguably the most critical component of an end-to-end digital banking enterprise, as it negates the need to replicate processes in the various channels and systems of record (SORs).

APIs are a key element in meeting this challenge.

Orchestrating APIs for Digital Banking Delivery

Banks need to standardize the processes being delivered through multiple SORs and banking channels, while at the same time having control of the user experience (UX) delivered through each channel. A call center rep, for instance, needs a different customer servicing experience than a consumer using a mobile device. This illustrates how APIs can play a key role in standardizing an institution’s processes, while preserving the ability to deliver different user journeys. Putting the institution’s processes into an easily accessible API library can do that.

Take a seemingly simple customer request like an address change, when the customer’s old address may be stored in multiple SORs:

Each bank has its own security and fraud checks for ensuring that bad actors aren’t trying to steal the account by changing the address.
Third-party web services must be accessed to validate the new address.
Confirmations may need to be mailed or delivered electronically to customers.

And this is just a sampling. Even such a simple request could have dozens of steps and interfaces. Putting a “Change Address” API in the bank’s process library allows any channel application — from self-service mobile apps to bank-assisted channel apps in the call center, branch and back office — to call the same API and the requested service will be executed consistently.

Why APIs Are Critical:

Financial institutions need thousands of processes to serve their customers. Having all in one place trims maintenance, complexity and compliance costs while driving efficiency and satisfaction.

All the APIs include process orchestration that moves a transaction through the tasks and updates all the SORs and other third-party systems to ensure end-to-end completion. Centralizing process APIs not only makes building the channel apps much easier, but it also ensures customer fulfillment is the same, regardless of how or where the request was initiated.

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How APIs Enable ‘Best of Breed’ Technology Choices

APIs have revolutionized communications between applications. Banks used to try to accomplish the same tasks through middleware and proprietary interfaces, but APIs have been a game changer.

APIs have become popular in the financial industry due to the increased demand of digital banking, as they enable different vendors to offer their services — either the complete service, a component of their service or a microservice — to any bank, by providing access to their APIs. A vendor on the other side can pick up those APIs and embed them into their service.

Keep APIs in Perspective:

A major misconception about APIs is that they make everything plug and play. This is a common oversimplification of APIs.

Lifting the curtain reveals more complexity, including the potential lack of interoperability that can result in new silos and issues. These issues multiply according to the number of core systems an institution has. Larger banks often have dozens to support a multitude of product offerings.

Using APIs properly creates an internal and external ecosystem of new apps and services that opens the banking system to an entirely new set of capabilities. Like an app store, institutions can offer best-of-breed third-party services to benefit customers and capture more business. Open APIs, coupled with agile product manufacturing, allows banks and credit unions to implement their own unique products, business processes and customer-facing layers that differentiate them in the market.

With APIs, an institution can offer banking services within third party apps to attract new customers. Most business segments have industry-specific software that is used frequently to operate their business, and these can be a great place for institutions to partner with the software provider or industry trade groups to offer banking services. The banking service can be embedded in the industry app and launched seamlessly with a click of a mouse or a tap on a phone.

A Word About New Gen 3 Cores

Legacy systems of record are well known for their rigid and siloed nature, making it difficult to support an integrated digital experience. Typically unique SORs support each product offered. Each legacy core uses different technology, making tasks harder and longer to complete.

As a result, dedicated teams are needed to support all the functions of each SOR. These range from account opening and servicing, back-office processing, regulatory compliance, security monitoring, third-party integration and system maintenance. These functions must be replicated across each core.

All this has saddled the entire industry with a huge cost burden. The new generation SORs — called Gen3 cores — are cloud native and API-first, and can address this burden. Typically they include a “product factory” that allow banking institutions to develop new products quickly through a configuration process. This capability is key as it allows banks to innovate.

Another feature of most Gen3 cores is the ability to support multiple product lines that historically required the support of dissimilar cores to support. The product factory capability in the new Gen3 cores can support all the institution’s products in a single core. The elimination of these costly siloes can drive massive efficiency and allow a large financial institution to reorganize their people around the customer, rather than product lines.