FinTech Innovation, Singapore: Cognizant’s Senior Vice President of Banking and Financial Services Says Banks can Outsource Innovation Through APIs

“Ever-changing millennial preferences, combined with the rise of next-gen technologies, are fueling digital disruption in financial services,” says Jaideep Poondir. “Advances in IoT (the Internet of Things), sensors and embedded systems imply that any inanimate object can be a computing device/platform. Enabled by latest innovations in APIs, these devices can now connect with various banking applications, thus providing opportunities to exploit them for commercial gain.” Excerpts:

“Banks do realize the impact of connected devices and are therefore trying to evolve into “digital institutions” of the future by adopting an open API strategy. They are leveraging the services of API management tools such as Apigee and Mulesoft, which are accelerating digital transformation by providing software for connecting applications, securing the connection and delivering a seamless customer experience. Progressive companies are re-engineering existing applications and building newer applications using Microservices architecture. In this architecture, an application is broken into smaller, completely independently-maintained components and are invoked by APIs. APIs are hence proving to be a big boon in abstracting the complexity and diversity of integration with various applications.

Banks can outsource innovation through APIs. Based on APIs that banks expose, third-party developers can build intuitive apps. In an increasingly mobile-only world, these apps will allow banks to get up, close and personal with their customers. Banks can also develop new business models by integrating services of fintech startups through APIs. Moreover, banks can encourage a culture of innovation among their employees by organizing internal hackathons that leverage APIs.

There is also a push for APIs from regulators. The Competition and Markets Authority of UK has found that only 3% of personal and 4% of business customers switch to a different bank in any year. Further, it concluded that older and larger banks do not have to compete hard for customers’ business, while smaller and newer banks find it difficult to grow. To encourage competition, they are recommending banks to implement Open Banking by early 2018.

The market conditions are ripe for open APIs to take off. All stakeholders in the banking ecosystem ― governments, developers, customers and banks ― are on board in their push for APIs. However, specific challenges need to be addressed before becoming a part of a truly open banking ecosystem.

For governments and regulators, it is important to agree on standards to be adopted for open APIs as banks would look for guidance on these standards and legal requirements as well. For banks, it is the presence of legacy IT systems that complicates the issue of data-sharing. They need to find secure ways to provide access to data residing in these systems for which they might incur additional costs in development. Banks also need to address data privacy concerns that customers and regulators might have while embarking on implementing an open API strategy. APIs can potentially lead to control problems because once exposed, one cannot be sure if they will be used for purposes they were meant to handle or for purposes that can potentially lead to either customer dissatisfaction or misuse of IP to create competing products.

The extent to which banks could face liability in case of events such as data breaches is an additional concern that needs to be addressed. The ultimate benefits of APIs will materialize only when developers can build intuitive apps on top of the APIs. Hence, deeper collaboration with them can lead to wider API adoption.”

Click here to read more (requires subscription).