Michael Brink, CTO CA Southern Africa explains what is driving the use of APIs in banking and finance
Banking on digital transformation
Digital transformation has become a way of life in the banking sector. In fact, anecdotal evidence suggests that many banks now have more developers than Microsoft does. The challenge lies in creating innovative, high-quality customer experiences and services at the speed the market is moving, while remaining compliant with shifting market regulations. Software is the key.
Banking is under pressure. Growing customer expectations, digital disruption and new competition are forcing constant innovation in the drive to deliver better services. PwC* sees three trends developing in the South African market that could impact the banking landscape as well as the profitability of banks:
- The emergence of digital solutions with lower-cost models launched by adjacent financial services players e.g. Discovery
- The rise of sector and industry-specific banks, tightly integrated with broader supply chains, launched by non-financial services players such as the South African Post Office
- Ongoing transformation of the four universal banks to address changing customer, regulatory and technology needs.
Banks have a choice – they can perpetuate the monolithic model with one-off APIs that meet a specific customer or regulatory requirement or build a new banking platform that supports future compliance, scalability, and flexibility to innovate.
Financial institutions have been forced to evolve in this new era of transparency, with authorities taking unprecedented steps to ensure consumer protection. Among the most comprehensive transparency drives is Open Banking**.
APIs lie at the heart of open banking or ‘open bank data’, a banking practice that gives third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions. It is recognised as a major source of innovation that is poised to reshape the face of banking.
This new platform is opening up payment services and ushering in a host of innovations, including peer-to-peer payments and aggregated accounts. If payment apps can prove their security and ease of use, they are likely to replace cash and cheques.
The evolution of APIs
Traditionally APIs would be referred to as technical interfaces for software programmes; they have become increasingly sophisticated, representing integral components of the Internet of Things (IoT).
For example, a smartphone might be used to pay for an item in a shop, with the device then sending data via an API call to update the customer’s bank-account balance after payment. As such, APIs make communication between relevant parties more convenient and efficient, among their many advantages.
In the banking context, this interfacing enables a third-party application to access a bank’s common tools, services, and valuable assets, such as financial information, customer accounts and product catalogues. In doing so, APIs make it quick, convenient, and cost-effective for the bank and the third party to connect.
By facilitating access to valuable shared customer data, clients can potentially have a better overall experience when conducting their financial affairs. For example an API can be used to analyse customer-transaction data and glean which available financial offerings are most suitable to which customer, such as a lower-interest credit card, specific loan product or higher-interest savings account – translating into the bank being empowered to offer a more personalised service.
Look out for my next article in this three-part series, where I will expand on the status of APIs in the banking sector.
About the Author
Michael Brink was appointed CTO of CA Southern Africa in 2019, with responsibility for outlining the company’s technology vision, ensuring technological resources are aligned to the business needs, implementing strategies, and managing high-performance teams. A 20-year veteran of the technology industry, he has a track record of success in delivering transformative technology to the marketplace.