Open banking and API integration

APIs are like digital middlemen, rapidly transforming the world of finance and banking into a more connected ecosystem than ever before.

Banks have hitherto maintained strict autonomy over the ownership and utilisation of their customers’ financial data. The concept of open banking with API integration is set to disrupt this trend and lead the way to a more transparent, personalised, customer-centric financial experience.

What is open banking?

Open banking is the system of using open-source APIs to enable financial data sharing between banks and third-party financial service providers. In open API banking, banks open their APIs to third parties, allowing them to access their customers’ data and credentials for developing new, personalised services.

Globally, open banking has had a slow uptake with the current lack of regulations and privacy concerns. However, it is set to be among the decade’s most disruptive and transformative trends due to the potential convenience, range of services, and monetisation opportunities it can offer the stakeholders.  

How open banking can future-proof banking business processes?

Traditionally, banks have seen fintech as a threat to their customer loyalty and retention. In the past decade, leading banks digitised rapidly to step up their banking business processes and keep pace with the range of wealth management services that modern customers demand.

By adopting open API banking, banks can shed their antiquated processes and invite innovation and advancement. They can stop competing with fintech companies and instead, strategically partner with them.

Here is how open APIs in banking can benefit all stakeholders:

  • When banks open their APIs to third parties, fintechs access the consumer data required to develop better financial services and solutions.
  • As fintech companies target banking customers to broaden their reach, it pressures banks to upgrade their offerings, while also acquiring new revenue streams through strategic partnerships with fintechs. Moreover, it enables them to stay competitive and relevant in an evolving financial landscape.
  • For the customer, it means an enhanced experience, a wide array of finance and wealth management services, and hyper-personalisation.

Potential benefits of open banking with API integration

Here are some of the potential use cases of open API banking:

  • New revenue-sharing models

    Few banks have the resources to build digital products in-house. By opening up their APIs to technology and financial service providers, they can participate in co-creating and distributing financial products, fostering a revenue-sharing ecosystem across the banking, finance, and technology sectors.

  • The growth of BaaS

    Open API banking will enable banks to offer Banking as a Service (BaaS) by allowing third-party access not only to their customer database but also to their core functionalities. The BaaS market is expected to thrive in the coming years, reaching USD 65.95 billion by 2030 through a CAGR of 15.1%.

    Banks can benefit from becoming critical players in a broad range of customer-centric services, such as -

    • Personal Wealth Management (PFM) tools
    • Personal and commercial insurance
    • Online payment applications
    • Automated investing platforms
    • Real estate portals
  • Account aggregation

    Barclays, which is among the trailblazers of open API banking systems in the UK, has enabled account aggregation in its mobile banking application. This feature is highly popular with customers as it allows them to view multiple bank accounts within a single app.

    The account aggregation facility will drive quick uptake with other banks when open banking becomes a norm.

  • Short-term financing solutions

    Fintechs and lenders can use the bank’s API to authenticate consumers’ identities and credit histories to make informed lending decisions.

    Besides lowering the lenders’ risk, this will make it easier for individuals and businesses to avail of short-term financing solutions like trade credit, bridge loans, and Buy Now Pay Later (BNPL) options.

  • Tax automation

    Although the idea is still in its nascent phase, automated tax processing and real-time tax payments can be among the best use cases of open banking. Currently, open banking APIs offer several tax preparation benefits by letting accounting platforms access customers’ tax data from banking systems.

  • Hyper-personalising the consumer experience

    Fintechs, insurance companies, brokerages, investment managers, and credit lending companies can build detailed customer profiles by drawing on open banking APIs and use the information to build highly personalised products to fit each client’s unique needs.

    By embedding these services in their websites or mobile apps, banks can generate revenue from referrals and partnerships while letting their customers access various services from a single platform.

For organisations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed organisational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like living organisms will be imperative for business excellence. A comprehensive yet modular suite of services is doing precisely that. Equipping organisations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organisations that are innovating collaboratively for the future.

How can Infosys BPM help?

Infosys BPM assists banks and financial institutions safely transform their traditional operating models. Our offerings include multiple authentication, verification, screening, and fraud detection tools to ensure that you can stay focused on developing innovative solutions for your customers.

Know more about Infosys BPM’s banking and business process management in financial services offerings.

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