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Banking as a Service: Building an Easy-to-Use API Ecosystem

The Asia-pacific region and Europe leads the way for Banks in Building APIs for Vast Ecosystems

Digital mayhem has increased connectivity and collaboration, and there’s no going back.

As a result, being present in niches is a newly acquired superpower for financial institutions. Banking as a Service (BaaS) enables Banking services through various unconventional digital channels with easy-to-integrate digital add-ons known as Application Processing Interfaces (APIs).

APIs are a pivotal addition to Banking today as it helps explore new sources of data collection to evaluate customer behavior. This is important especially if brick-and-mortar Banks are looking to match the potential of their younger counterparts – neobanks.

What is an API in Banking as a Service (BaaS)?

Open Application Programming Interfaces (APIs) let companies create new business models by reaching customers through app integrations on another company's digital (web or app) platform. For a Bank, this comes into play when Fintech and NBFC companies are looking to collaborate for digital-first banking, debit and credit cards, loans, and investment services.

A good example is an e-commerce portal like Amazon. With APIs, Banks can offer consumers the option to buy from Amazon using their digital credit card or debit card service, and even offer discounts, offers, benefits, as well as buy now pay later (BNPL).

Here, like in all other BaaS collaborations, the BaaS model helps with the assimilation and redistribution of data, for both parties involved in offering the digital financial service.

In the case of Fintechs and NBFCs with digital apps or websites, they can offer products and services to their customers/clients from Banks — by directly consuming the Bank’s APIs or by co-creating one.

Why has BaaS Become an Unmissable Opportunity?

Even though its importance is ever-growing, Financial Institutions are lagging behind other industries in API adoption because of stringent regulations. But as regulators are rapidly refining the rules, interconnected digital banking will soon take the center stage.

Studies suggest the Asia Pacific region and Europe are leading the way for Banks in creating and integrating APIs in vast ecosystems.  Both regions were early adopters: Wherein Asia’s integrated services in e-marketplaces and mobile clients are prevalent, European countries implemented a well-thought API-based open banking scheme under a regulation imposed by the Payments Service Directive 2, started in September 2019.

APIs for BaaS: Its Role in the Modern Business

Like every other business, banking soon catches up to trends for consumer engagement. The concept of partnerships is not new, APIs are just a modern way to create well-connected marketing ecosystems. By using APIs, banks share the control of user experience with their partners, which changes the relationship of the third party from a vendor to a partner.

For the once slow and closed banking industry, this is a huge change.

Banking APIs include account authentication and information sharing, capabilities for analytics, loyalty programs, consulting, and payment processing. In major developed and developing economies, regulators are forcing banks to share customer data and create a shared space for data validation, which the usage of APIs thrives on.

Since the trend is here to stay, here’s what banks should keep in mind while innovating with the connected ecosystem of APIs for a well-planned Banking as a Service (BaaS) offering.

Understanding the Competition: API-based BaaS v/s Neobanks

Neobanks is probably the best example of BaaS in action. In many cases, these Digi-first banks are not stand-alone organizations but simple add-ins on top of traditional banks. In that case, Neobanks provide an upgraded Digi-finance experience for its parent Bank.

Superior service, lower fees, and personal touch are some offerings of neobanks. Mostly, big loans and large financial operations are ignored; short-term loans, quick deposits, and partnerships with well-known retailers are prioritized.

For banks, the same could work well, as APIs can function as an interface to connect applications while sharing both data creation platforms as well as data.

Being watched for its impact on 'Financial Inclusion' in India, ‘open banking’ or ‘banking through open APIs’ will soon see a surge because of new market segments and regulations.

Some Areas Banks Can Focus on for a Sustainable Ecosystem?

An article published on Open Future World explains the process from planning to execution in detail, and here are some excerpts that cover how to connect the dots for sustainable API integrations –

Digital Product Definition – API Design, Data Scope, and Plans for Value to Be Added

To begin, there are three questions that your team must answer:

  1. Why do we want to implement the APIs?

  2. What tangible results do we want to achieve with these APIs?

  3. How do we plan to run the API program to achieve these results?

API Exposure – Innovation as well as Adherence to Market standards

The simpler the integration is, the more partners will be connected to your product, and the greater your revenue.

Creation of Indicators for Quality Management

Using analytical tools is the only way to evaluate progress. Here are some important topics to configure in your analytics tools to measure the success of APIs –

  • Business Value – revenue per API, cost of APIs, generated payments, successful API calls, number of customers using the API

  • Customer Experience – Active users, response time and availability, and number of Third Party Provider (TPPs) offerings used by the core customer base

  • Platform Usability – Number of TPPs within the ecosystem, number of transactions per TPP, number of TPPs per API

D2K Technologies is a trusted banking data and analytics solutions provider, innovating for digital financial ecosystems since 2001. Get in touch with D2K Banking Fintech Consultancy Experts for more information on roadmaps for deploying technologies for comprehensive data analytics.


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