How API’s are the next revolution in Banking?
A decade ago, RBI introduced NEFT and RTGS, followed by NPCI introducing IMPS, and this was a start of digital or online banking and a paradigm shift in the way services were offered to the end consumer. The Next stage of evolution was from an internet banking to API led Banking.
The dawn of API in banking has resulted
in significant changes concerning how financial operations are carried
out.
Although APIs have been widely used for over a decade, their use has recently become prevalent in financial services.
Understanding API
banking
API (Application Programming Interface) traditionally pertains to the tech interface between software programs. This interfacing ability facilitates a third-party application like PaySprint, to synchronise and connect to a bank’s tools and services.
API banking refers to a set of
protocols that makes a bank’s services available to other third-party companies
via APIs. This helps both banks and third-party companies augment their
complementary specialties and offerings more than they can provide to their
customers by themselves.
How API banking
works
Over the last few years, APIs have become particularly significant to banks and fintech companies. APIs provide better means to share data, integrate with systems, and personalise services, making financial services quick and efficient.
The same applies to banking.
Banks grant secured access to their
financial services to third-party platforms, helping companies build products
around banking services. Essentially, the core of the banking operation remains
the same, but the experience is heightened.
Let’s consider an example where the bank is ICICI, and the third-party company is PaySprint
1. ICICI bank allows PaySprint to access its banking services, making
transfers, balance query, and other functions available
2. Next, the integration of ICICI’s APIs
with PaySprint products takes place
3. Finally, PaySprint makes API calls and fetches the necessary services from ICICI bank to further execute banking operation
Types of APIs
1. Private API: This API is accessible only within the financial institution and is therefore used to improve internal processes, such as boosting operational efficiency.
2. Partner API: A more open API that can be accessed by the bank’s preferred third-party partners like PaySprint. As such, partner APIs can facilitate greater expansion through new channels than a private API. Such partners could include clearinghouses, brokerages and custodian banks, and they can provide services to their customers using the bank’s platform.
3. Open/public APIs: Not as commonly used at this stage, this API involves making business data available to third parties. Banks can deploy such APIs to generate additional business and grow their customer bases. For example, the bank could enable an API for a loan-comparison app, which would allow it potentially to acquire new business from customers shopping for new loans.
Benefits of API banking and how is it causing a Revolution?
·
With
API banking, innovators have more flexibility to provide the best features and
services to streamline financial services, thereby creating a surge of
competition and innovate fintech’s products.
·
With
real-time banking capabilities getting enhanced, it has led to higher visibility
of cash flow.
·
Have
Reduced many administrative hurdles with regard to managing your own finances
like applying for a business loan, checking your creditworthiness, and many
more
·
Have
a single view of all your finances while being able to control, track, and
analyse all financial movements, all in one place
·
API banking has led
to innovation & thereby lowering the costs in a way that it is now more
economical to serve the undeserved and unbanked and offer products and services
better suited to their needs.
·
Today Fintech’s are
using API Banking to retrieve account balances in real time, processing
transactions at high speed round the clock,
· API Banking provide enhanced information for reconciliation in real time, process vendor and dealer finance transactions real time thereby facilitating faster churn in the ecosystem
Most important fallout of API Banking s the data analytics which lies at the heart of the banking API revolution. Banks can now collect substantial quantities of data relating to customer behaviour, which should, in turn, enable them to create more tailored product & services and also specific marketing initiatives. For instance, banks can gain a more realistic picture of customers’ financial situations, which in turn can create and offer the right lending product. Similarly could be payments, collections, ecommerce, gaming and many more use cases
Banks will continue to be the custodian of the customer and various products and services without comprising security and compliance whereas Fintech’s will be able to usher greater innovation, better technology creating a great customer interface leading to larger consumer adoption and Delight.
Today Banks are convinced that in order to grow and
extend the Banking solutions beyond their own banking Channels and technology
and in order to achieve larger adoption of their financial services they need
strong partnership with Fintech’s thru API Banking, so thereby API Banking is
truly creating a Revolution in Banking.
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