Open API: What's Next?
Can it accelerate the Tech led innovation in the BFSI sector?
Application Programming Interface (API) is a buzzword now in the BFSI Industry, while this is a pure technical word but it's very famous among business leaders. Creating a humongous opportunity for partnership between different players such as fintech, NBFC, banks, etc., creates space for more and more innovation in the industry.
Banks are now convinced that in order to extend their banking solutions and achieve true financial inclusion beyond their own channels they need a strong partnership with fintech players.
The Research and Market report states that the global API management market size was $3.2 billion in 2019 and is expected to reach $6.2 billion by end of 2024. The survey conducted by Cloud Elements says, 83 per cent of major global firms from 44 countries consider API integration a critical part of their business strategy to drive digital transformation initiatives. Around 77 per cent of the firms who participated in the survey said that they have invested in API management.
Today API-led banking has become a norm and this is helping innovation across all sectors of banking such as lending, insurance, wealth, etc., and has the potential to change businesses by offering extreme set possibilities to banks and other financial institutions.
API; opening business opportunities to banks:
- APIs allow bank partners to use its infrastructure in offering their own services such as co-branded credit cards, reward programs, and so on.
- Banks and financial institutions can even establish a secure digital wallet for their customers using APIs through a secure and encrypted environment for maintaining and transmitting sensitive information.
- Real-time and historical data can be combined and processed via APIs to define, measure, and track Key Performance Indicators (KPIs), which support informed decision-making and responsiveness across the organization
- Opening up resources to online banking marketplaces that provide comparisons of loan and insurance rates, credit card offers, require seamless API support.
While API has added immense value to the industry, there is a large opportunity to make it better.
What is the challenge with API?
The main challenge is API needs tech efforts, so there is the cost for integration both in terms of time and resources. Say if a fintech works with 10 different banks/NBFC, it has to do 10 different API integrations. The cost of integration is linear and time-consuming.
While fintech spends 10 times for a partnership with bank, the bank work with 10 different fintech, so at an industry level cost is getting multiplied X -> 10X -> 100X.
The same goes with merchant and fintech integration, especially for Buy Now and Pay Later (BNPL) products where the merchant platform is integrated via API with banks/fintech.
So, there is a large waste of effort at the industry level, isn't there? If we make the API integration cost constant say with one integration you can do business with all, i.e., literally, you can get a new partnership started in a day. Sounds too good to be true?
How can we get more from open API; is standardization the way forward?
We need to move towards API standardization. API specification must be clearly defined at the industry level which everyone will follow to create their open API. If there is a need for integration with fintech A and want to integrate with B, you just need to configure a new endpoint, with no code change.
To achieve that we need to create a forum for banking on tech or existing forums need to bring more partners from all segments of the BFSI industry and help define these standards.
Banking on Tech forums consisting of new and traditional BFSI companies needs to get stronger and more impactful. This will save dollars and time for everyone.
There are 3rd party platforms coming up in the market to fill in the gap created due to non-standard APIs, typically these players act as a middleman for all integrations, which is fine but from the business perspective, this requires additional cost and most importantly sharing of business data with 3rd party platforms.
So, this is a time we need to push for standardizing of API across the BFSI sector. This is going to further accelerate the Tech led innovation in the BFSI sector.