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Why API integration will allow the digital banking ecosystem to thrive in 2019

Open banking is about building and integrating an ecosystem of digital products, designed for one purpose – to create a seamless user experience. What we at Cloud Elements have seen over the past several years are more and more businesses realising that APIs (application programming interfaces) are fundamental to the digitalisation process. 

In fact, API integration – the function that allows third party apps to speak to each other – is now so important that 55% believe it is “critical” to business strategy. While many banking and financial institutions have moved slowly towards an open API strategy, the pressure of further PSD2 deadlines means they now need to move more quickly.

To transform into platforms that enable the applications and services their customers want to use, banks need to overcome some key integration challenges, revealed in Cloud Elements’ recent industry report.


Meeting business needs

When a fintech launches a new product or service it also needs to offer an API, which allows third party apps to connect to it. This is essential today, because fintechs can only be successful if third party apps are able to capture their data. Why? Imagine using an app that allows employees to log business expenses. This app is only useful to a business in the first place because all the data it stores can be accessed by other apps in the ecosystem.

However, 44.7% of developers say that before the widespread integration of apps is possible, we need APIs that already fit specific business needs. This is very challenging when dealing with many applications at once, because you need to figure out one by one what the API is for every app, and then work out how to integrate. To create a fully connected open banking ecosystem, a scalable approach to this task is needed.


Time is of the essence

So, imagine being on a business trip and logging an expense on your mobile expenses app. Unknown to you – the end user – a third-party ERP app will capture that expenses data, where it will be submitted as an invoice. Eventually the invoice will be processed and approved in the ERP app, and when it does, you will be notified on your expenses app that the expense has been paid.

This all sounds very obvious. Simple, even! But the entire process just described is, in the developer world, called an “integration workflow”, and Cloud Elements’ research shows over a quarter of all developers find it to be the most time-consuming part of API integration.

All this interchange of data from one app to another is a highly complex set of steps boiled down into a single operation from the perspective of the end user - this why the experience appears to be so seamless. But it could take banks a very long time to build the integrations that create this experience, which is so fundamental to open banking. With the next PSD2 deadline looming, a workable strategy needs to be implemented here.


A frustrating process

In the example above, we saw that after the expenses data is captured by a third-party application, it undergoes a series of updates within this separate system. First it is submitted as an invoice, then approved, and finally paid. As these separate events are happening, the expenses app is listening in every step of the way, allowing the end user to see real time status updates. 

This is only possible because of real-time integration, also known as “Event Driven integration.” Building these integrations is very, very challenging. In fact, Cloud Elements’ research found that nearly 40% of developers find it to be the most frustrating part of API integration. If the vision of a seamless open banking experience is to materialise, then, banks will need to have a strategy for building hundreds, even thousands of these integrations at a time.


The good news

Here’s the good news - the API integration industry can help banks overcome these major challenges.

If integration platforms take the approach of normalising APIs, fintechs can easily integrate with all the applications in the ecosystem and handle all the specific use cases out-of-the-box. This means banks and fintechs won’t have to deal with individual applications one by one and figure it all out for themselves, saving a lot of sweat and tears. Here, a top tip for platforms is to work with REST APIs, which over 70% of developers prefer to consume.

API platforms can also simplify the complex steps that allow data to flow between different applications. The way to do this at scale is to offer pre-built mechanisms which allow information to be captured across separate systems. With these mechanisms in place, banks will not need to worry about time-consuming integration workflows, and the heavy lifting can be done by software providers.

In one fell swoop, this also meets the challenge of building real time integrations. At Cloud Elements, this has been a real game changer for many of our customers. Instead of manually transferring data from one app to another using an excel file, our integration platform automates the entire process. 

The widespread adoption of these integration solutions will accelerate innovation in open banking and fintech, giving banks a much better chance of meeting PSD2 deadlines. More importantly, the seamless experience envisioned by open banking simply won’t materialise without them.

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