Fintech has always been a challenging topic for financial institutions. However, the majority of them see how useful are innovations presented by the financial technologies market. Open API adoption by bank systems isn’t an exception. It’s a big step towards improvement of customers’ money management experience through applications created by third-party providers.
What is banking API?
Speaking about banking API, it’s worth mentioning its meaning. API is a set of code used for building data transfer between all software. In other words, it’s a bridge connecting several sources, enabling their synchronization.Banking API doesn’t differ from its basic idea. It allows to connect a bank database with other applications that simplifies financial processes. API usage is a good way of creating an efficient ecosystem: a bank can connect to other APIs in order to implement new functionality.
Open banking API in the USA
Not so long ago banks in the USA finally decided to consider open banking usage. It’s predictable — IT sector leaders develop fintech solutions with a high speed, not giving time for doubts and hesitations. Financial establishments can’t deny success of IT giants, e.g. Google, which often share products with other businesses and get profit from it. Furthermore, BBVA, Capital One and HSBC were the first who adopted innovations. Of course, these cases stimulate others to cast prejudices away and consider open bank API as a powerful tool.
The main obstacles which banks meet on their way to open banking are the governmental regulations. Regulations restrain banks from fast and painless adoption of open API. And another thing is a state-by-state approach to legislative standards in the USA. It isn’t so easy to set the same standards across the whole country and make the innovation nationwide.
Nevertheless, open banking is among top trends for 2020 and the financial services industry in the USA can’t stay aside of it. Banks will continue adopting technologies because they see a high customer demand. It makes financial institutions forget about former practice and engage developers to deliver the best services to consumers.
Open banking API in Europe
Open API in Europe has its roots coming from the UK. After CMA regulations went into operation, service providers got permission to develop solutions on the basis of banks’ APIs. Banks were stimulated to implement this innovation due to PSD2 regulations. Unlike the USA government, the European Union supported the initiative and encouraged it. According to PSD2, vendors can use APIs for software development. Can we call it a new era in finances? Yes, to some extent. Now vendors develop and test beta versions of software which will bring profit to the market of finances.
This approach has significantly changed banking sector in Europe. Institutions had to consider new regulations and to follow them. On the other hand, they get so many chances for developing more effective systems and open new directions in customer loyalty sphere. Obviously, this tendency will raise competition among banks and some of them can fail. But European countries are still leaders in this sector that’s why predictions for 2020 say that the adoption of the trend will be accelerated in European countries.
Open API: new stage in banking
Considering open banking as a big shift in the banking sphere, it goes without saying that its adoption has influenced all players crucially. Cooperation with external businesses has increased revenue of the banks which aren’t afraid of something new. And it’s only the beginning!
Positive impact
As it’s mentioned above, benefits of open banking in the USA and Europe are obvious. First of all, banks will significantly improve a customer journey by offering applications with top-notch usability. Chances are that client loyalty will grow. The growth will influence fintech as well: the diversity of services will increase, they will be developed for numerous purposes of banks.
In addition to all other advantages, experts distinguish the following:
- More profit.Better banks reliability for clients and improvement of branding.
- Extension of banking services without extra expenses.