Navigating the API Labyrinth

APIs have been with us for many years now, and initiatives like open banking and PSD2 have brought them to the fore as the main facilitator for valuable interactions between the ecosystems of banks and fintechs. Still, many financial institutions have not made use of the full potential of APIs. In the ‘Navigating the API Labyrinth’ panel session at the first day of Sibos 2021, five experts discussed the development and future of APIs in the financial industry.

The Application Programming Interface (API) enables two separate applications to communicate with each other. We use these APIs regularly in our lives, in many cases without even realising it, for example when communicating through social media or during online banking.

Within the financial industry, these software intermediaries are both the driver and enabler of innovations. Traditional companies, including banks, often use IT systems that were developed on a standalone basis, as a result of which, they are not able to communicate by themselves. APIs can play the missing link here, enabling financial institutions to move with the digital times without having to restructure their entire IT infrastructure. And over the past year, the global pandemic has accelerated the digital transformation. This has also drastically changed the nature and volume of APIs, for instance through the platformification of retail and changing customer demands.
 

API-first mentality

The experts on the panel agreed that banks should apply an API-first strategy. When combining APIs with microservices, banks can build new capabilities or retool existing ones. This way, they only have to build new functionalities once and use APIs to make them available on all their platforms and channels. It enables them to structure a consistent ecosystem, in which they can provide more flexibility and a better experience to end users.

Still, we have not yet unlocked their full potential and the lack of standardisation in this area is one of the main causes for this. However, as there are so many use cases and strategies regarding APIs, where do we even begin to standardise them? We must be careful not to make elaborate plans for the future, as we do not know how things will develop. In fact, the technology behind APIs is not yet that mature, so it is nearly impossible to predict what the API landscape will look like over a few years. This makes standardisation so difficult as you cannot set al the rules today.

Therefore, for now, it is important to think about the business model behind the API and the customer should always be at the centre. In addition, it is crucial to cooperate with good partners and create an open API architecture that is flexible and with which you can anticipate the future.
 

Optimised ecosystems

Even though we are not using the full potential of APIs yet, I am sure they have already become indispensable in the financial industry. After all, they not only enable innovation, but they also offer cost reductions, offer a better customer experience, and make financial institutions much more flexible. Therefore, I believe it is crucial for the industry to work together on open APIs and create proper standardisations as much as possible. Together we can create optimised payment ecosystems, from which all actors, including financial institutions, retailers, and consumers, will benefit.