By securely making their proprietary software available to third parties, banks can bring to market new, innovative apps and give rise to more choice and services for banking customers. All of this is being made possible by application programming interfaces (APIs) – software gateways that let different applications work together and communicate with each other, such that outside developers can create new apps that take advantage of certain banking functions without going behind their firewalls or accessing personally identifiable information.
Although APIs haven’t exactly taken off in the banking world just yet, Guillermo Kopp, LATAM financial services industry director at Microsoft, believes they will soon. “In the next five years, APIs will add trillions of dollars to the economy,” he says. “In other industries, companies have moved quickly to launch APIs and give developers access to their source code. PayPal’s payment API, for example, lets third parties design and host their own checkout pages. And while we expect the shift for financial services institutions to the API economy to be a more gradual one, it’s something we will certainly see more of in the near future.”
For many banks, APIs serve as an easy pathway to drive innovation through partnerships rather than having to build everything from scratch themselves. “The opening of APIs extends banks’ client value chains by tapping external pools of expertise which are not available and not practical to fund internally,” explains Peter Hazou, director of business development, Financial Services at Microsoft. “The transformation in bank operating models means it is no longer an efficient use of resources to construct all elements of their desired end-state of digital business themselves. APIs are a natural modus operandi for extending reach and relevance.”
Indeed, as some leading banks are already finding out, APIs are an ideal option for keeping pace with client digital expectations that they cannot support alone.
“They permit banks to focus on and develop their core strengths rather than trying to be all things to all people across all technologies as current trends demand,” says Hazou. “They also broaden the network effect of their services by connecting to external providers in the wider economy.”
Ultimately, Hazou expects the flexibility that comes with use of APIs will become too good an opportunity to turn down. “From a business model point of view, other service industries are experiencing quantum growth by opening their interfaces through APIs,” he says. “Banks can now do the same.”
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