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The development of the FinTech industry has had a significant influence on the dynamics of financial services ecosystem. APIs became one of the principal tools that must be adopted in order to create a stable basis for the future success of open banking.
It is difficult to imagine the evolution of the open banking concept without APIs in the picture. Moreover, it is not only innovative startups that give it essential importance, but also the traditional players of the banking industry. The latter realize that without integrating new technologies and upgrading their digital capabilities they will soon be suppressed by newcomers, who offer superior services and are more convenient for the customers. As a consequence, even such well-known companies as PayPal, Wells Fargo and Visa are taking advantage of the opportunities brought around by open banking. Moreover, with the adoption of the PSD2 banks became legally obliged to create APIs in order to facilitate access to client account information. Open banking has started to reshape the banking industry, giving customers a wider range of options, making banking more user-friendly and creating new revenue channels for the providers.
In this article we will talk about the ways open banking APIs have affected the consumer offers.
APIs have not only become an efficient data sharing channel, but also a new way for doing business. The European Banking Association (EBA) has reported that thanks to the adoption of APIs banks became able to enlarge and upgrade their service range. Nevertheless, along with progress come a variety of potential threats. The FinTech companies that get access to banks’ data may use it to create innovative offerings and “steal” clients from the traditional institutions.
Talking about the advantages, deploying their own APIs makes it possible for banks to connect other APIs that exist on the market and introduce innovative solutions, developed by FinTechs, to their customers. For instance, Experian Connect API allows users to see their real-time credit score through their existing bank account, and National Change of Address API sends banks a notification in case a customer changes his address. Therefore, using the opportunities offered by open banking APIs, banks are able to provide a better value proposition to their existing customers and attract prospect ones.
It is important, though, to take into consideration that APIs can potentially give the competitive advantage to FinTech companies, leaving banks behind. For instance, a startup can create a mobile app that will allow users to manage finances, debt, and use robo-advisory to look for investment opportunities, all thanks to a bank’s Customer Data API. A very small percentage of traditional banks offer such and advanced service range, which means that by opening their APIs the banks can lose clients and give FinTechs a strategic advantage.
Given the latter, banks may choose to reject open banking initiatives, including APIs. Yet they can also take the situation as an unseen opportunity to revolutionize their operation. If traditional banks are willing to secure their place within the value chain, they must not reject the existing initiatives. They should establish a cooperative relationship with the digitalized newcomers and improve their product range through embracing new technologies and partnerships.