The payments industry has undergone surges of change and growth in recent years, especially since early 2020. The COVID-19 pandemic tested existing processes, and in many cases helped create new ones. Application programming interfaces (APIs) have been a major part of that shift, allowing customers ease of use and financial institutions opportunities to streamline processes and look toward the future.
We recently caught up with industry leaders Robert Mancini, head of payments at financial services software and cloud solutions provider Finastra; and George Bassous, CEO of Affirmative Technologies, which provides electronic payment processing and risk management, to discuss the importance of APIs and their resonance in the near and far future.
What do you see as the current states of APIs? We last touched on this topic back in January. Now that we're in a new quarter, what has changed, if anything?
Mancini: There has been a lot of change, and there are no signs of slowing down. We can all agree this pace of change in digital continues to increase at an unheard-of speed, fueled by COVID-19. In speaking with a number of financial institutions, APIs are now first and foremost in terms of technology that affect change. Broadly, banks are exercising agility in their business models by leveraging partnerships with FinTechs.
Bassous: The technology is there. APIs are advanced enough to do everything we do today-and a lot more efficiently than ever before. Also, we are finding core providers who are allowing APIs. I think that's the biggest hindrance of advancement in our industry: Prohibiting APIs or other services to be provided. That holds customers hostage.
What do open APIs mean for FIs?
Bassous: Open APIs mean a lot more business. The growth is coming not just from FinTechs but also from traditional businesses. COVID-19 accelerated that process. Companies are finding ways to communicate digitally and create more efficiencies. APIs are a good way to get them there. The efficiencies that APIs bring to the table are beyond anything they can do in the physical world.
For example, if you go to originate an ACH transaction, right now you log onto a website, open or upload a template or add an existing template, and press send. With APIs, that can be integrated directly into the system.
Mancini: I believe banking depends on open-platform APIs. If FIs don't get on board with this, they will disappear or be absorbed. APIs enable interoperability while the open platform on the cloud represents infrastructure to offer an agile, low-cost mechanism to enable rapid time to market to meet expanding customer needs. It's driven by the competitive influence out there.
From the banker's perspective, I would break it down even more pragmatically to divide [APIs] into three key categories: Data, product, and technology. Banks should ask their partners what technology requirements are needed to deliver product features [in those areas] that maximize the client experience. They should ask how they infuse data and digital capabilities. And they should ask how banks achieve a resilient architecture on product and client experience.
What do FIs do if they have overly customized their systems and then they can't talk to each other? Is there a kind of correction they can do? For example, how could a custom core shift impact the implementation of new API-based products or services?
Mancini: I think each bank has its own unique challenges. It's not one size fits all. And I do think that implementing a platform can enable a bank to have an overlay to core providers while connecting to the outside world.
Think of a waiter in a restaurant. He goes table to table and takes orders from customers who have reviewed the menu and tell him what they want. Then the waiter brings their orders to the kitchen. Then the cooks in the kitchen prepare their meals, and then the waiter brings the food to the customers. Data protection is like that. The chef won't know the couple at table 12 are fighting. They only know they want a Cesar salad and chicken parmigiana.
Bassous: APIs can easily be created to solve specific needs; this would depend on the system capabilities and the objective. The best way to do this is to modernize where you can; if the Core doesn't have the capabilities, then have a process for the files to be diverted or stored in a modern system that is API-friendly, this would maintain your existing process and at the same time provide a way to maintain compliance, reporting, etc.
What are the opportunities for FIs? How do they make the mindset transition to thinking not about what their cores provide, but what they can do by tapping into a more open infrastructure?
Bassous: Payment options are a big opportunity. Not every bank has RTP now. Those banks aren't allowing these types of payments, maybe because of lack of technology, or being restricted by their existing vendor. But customers will go somewhere else.
Also, with the variety of payment options, there are payments that are going to require APIs. For example, cryptocurrency payments or RTP won't work without APIs. These newer payments have to have APIs. They can't be done with things like file drop.
Mancini: I think FIs can make this leap in a few ways. The first is taking an approach that needs to remain customer-centric. You need to rely on their needs to guide a product strategy that is data-driven and puts them front and center. The second is improving time to market. A new product or service can take years and then be obsolete by launch time. As banks embrace APIs and cloud/third-party programs using the minimum viable product approach, it allows for rapid learning in a fraction of the time.
What would you advise an FI that's late to the API train? Or is this a situation where it's better to be a later adopter? Why or why not?
Bassous: The best time to have gotten started with APIs was years ago. The next best time is now. Don't delay; it can mean the difference in a business' survival. The future belongs to who has the most advanced technology that can accommodate the needs of their customers. It's more urgent now than ever.
The pandemic changed everything. Before COVID-19, you had a timeline and a schedule. Now, all bets are off. I commend the industry; they've done a great job, but changes are happening. Paper and manual processes that existed before the pandemic have, for the most part, vanished. People aren't going to banks like they used to. You have to keep thinking about the customer. They're not going to want to take baby steps, they're going to want to leap to where they want to be. Financial institutions will need to adapt.
Mancini: That train is moving rapidly. I would not advise taking a wait and see attitude. But we do need to provide a broader perspective. APIs are not strictly a technology change. It will change the way banks sell their solutions, onboard customers, improve customer relationships, and deliver value. It's not a big bang, but instead an evolution. It will be helpful to leverage a good partner and take advantage of the larger partner ecosystem.
To learn more about APIs or get started, please visit the Building Blocks of Payments series.
AUTHOR: Joe Casali, AAP, NCP
Executive Vice President
As the EVP of Payments Innovation for NEACH, Joe focuses on exploring innovative solutions and technologies that will help position members for success, both now and in the future. Connect with Joe to read more of his blogs, articles, and posts.