Open Banking API is Helping Banks & Fintech companies Leap Bounds - Oaperg Technology
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Open Banking API is Helping Banks & Fintech companies Leap Bounds

The financial services sector is undergoing a period of rapid technological advancement. It has embraced new technologies to help improve security and give customers more value due to the digital revolution. APIs are a critical part of this transformation. 

Traditional banks have rushed to acquire or form alliances with FinTech startups as they have begun to disrupt the industry. Through open banking, APIs have provided a new path forward for both parties to take. 

When it comes to online banking, what exactly is “open banking”? 

Financial institutions like banks and FinTech companies use APIs to share data. FinTech developers use APIs to get the data they need to create new apps and services that banks can use to expand their offerings. Partnerships shine in this exchange instead of the old bank vs. FinTech dynamic. 

To benefit from open APIs, banks and FinTech companies work together rather than compete. Using a single platform to connect multiple financial institutions promotes standardization. These APIs can is leveraged by a variety of financial institutions around the world to provide similar services. 

Despite its youth, this method is gaining traction. Experts predict that by 2024, the number of people using open banking services will reach 132 million. 

In what ways are open banking APIs transforming the financial service sector? 

Open banking APIs are reshaping the financial services industry. As you can see, there are three primary ways in which evolution occurs. 

1. Banks will be able to modernize more quickly because of this. 

Open banking APIs enable rapid innovation, one of their most essential features. A costly and time-consuming way to implement new technologies is to acquire leading FinTech startups, and open APIs allow banks to integrate with existing FinTech platforms much more quickly. 

There are many benefits to customer relationship management platforms, but many banks lack the expertise to create or implement them successfully. As a result of open banking, they can connect their customer data to a platform developed by experts at another company, resulting in faster returns on investment. 

As more financial institutions take advantage of open APIs, the adoption of new technologies will pick up speed. The cutting-edge technology will be available to more financial institutions in a broader range of locations. Customer satisfaction, revenue generation, and digital security can all benefit from this shift. 

2. Opportunities for IT firms to Expand Their Business in New Ways 

Open banking APIs, on the other hand, offer new possibilities for FinTech developers. There has been a meteoric rise in FinTech investments over the last few years, with $34.4 billion coming in during the third quarter of 2021 alone. New products and services could benefit, but it also raises the risk of competition. 

App developers can use the open APIs provided by banks to find new uses for their products and new customers. Developers find work more accessible thanks to open banking’s rapid innovation. This opens the door to even more technological advancement as these companies access large banks’ vast amounts of data. 

There may be a lack of data in smaller FinTech companies, but they may be able to create innovative technologies. Using open banking APIs, they can overcome the challenges of the past, improve their current offerings and discover new avenues for growth. 

3. More options for customers to choose from 

In addition to connecting two financial institutions, open banking APIs can also benefit customers. Banking has a long history of being a complex, expensive, and inconvenient industry. When FinTech and large banks work together in open banking, it profoundly affects them. 

Mobile banking, biometric authentication, and integration with other apps are standard features of FinTech platforms. Larger financial institutions with more customers can now take advantage of open banking’s accessibility and convenience. These APIs use these larger companies’ data to improve and personalize these services and the user experience. 

Customers will switch financial institutions by 81% if they want more flexibility and accessibility, but only 46% of banks know how to use digital, data-driven technologies. The open banking APIs they need to meet the needs of their customers are provided by these APIs, and banking will become more accessible as a result. 

Obstacles that remain 

Open banking, enabled by APIs, is reshaping finance, but there are some roadblocks. When making decisions about this technology, banks, API developers, and FinTech companies should keep these challenges in mind. 

Uncertainty Regarding Regulations 

Open banking APIs face the most significant challenge because of a lack of regulations. Shared sensitive customer information in the financial sector will naturally raise concerns, and some banks may be reluctant to use open APIs until more established standards are in place. 

As of early 2022, 108 countries have open banking regulations in place or under review. This issue will eventually be resolved. Currently, Europe is ahead of the rest of the world regarding open banking standards, as mandated by PSD2 regulation and already in place across the EU. Neither the United States nor Canada has such legislation, but this will likely change soon. 

As these regulations evolve, developers and banks should keep an eye out. As new laws clarify open banking standards, countries may have inconsistencies. APIs may be limited in what they can do or how they operate across borders because of these restrictions. 

A sense of safety 

There are security concerns with open banking APIs, as with any data-intensive process. At the same time, available banking platforms can provide new security solutions and the risk of data being shared between parties increases. Security measures must be in place for the APIs these companies use to reduce the risk of a breach. 

The COVID-19 pandemic saw a 238 percent increase in cyberattacks on financial institutions. This alarming trend necessitates the inclusion of additional security controls in APIs. Allowing third-party security features like encryption and custom permissions is likely to require a thorough penetration test. 

Open banking API security standards are likely to be included in regulatory guidance. To reassure banks and their customers, developers should aim to go above and beyond these minimum requirements. 

Banking is being transformed by open APIs. 

Open APIs have laid the groundwork for a new era in banking, despite the challenges that remain. In the long run, as open banking regulations become more widely accepted, this practice could benefit all parties involved. Open banking APIs can benefit everyone, from banks to app developers to customers. 

Learn more on how we are helping clients leap in the financial Industry

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