Research suggests that mobile banking transactions are expected to double by 2022 in the US, and at the same time, there will be a 36% decrease in visits to retail bank branches. In order to be ready for this shift, banks must modernise their cumbersome core systems, which often run on-premises and in doing so, limit capacity, flexibility, and innovation.

Finextra spoke to Eugene Danilkis, CEO at Mambu, about their 'Digital Innovation: How will APIs transform banking in the US' report, how to increase internal efficiencies, connect to an array of services and roll out new digital products and services without expensive and lengthy integrations. Mambu is an Advanced Technology Partner in the AWS Partner Network (APN) and has achieved AWS Financial Services Competency for its expertise in helping financial institutions accelerate their journeys to cloud.

Prioritising innovation

“In the US, migrating legacy systems is a much harder task because the marketplace is dominated by a small number of entrenched players to which FIs are tethered to with strict contracts,” says Danilkis. “This slows innovation but through the use of cloud and APIs, banks can build an agile digital foundation, which allows them to experiment quickly and frequently in order to create new sources of revenue.”

Danilkis highlights that APIs drive innovation and customisation, particularly in scenarios that institutions cannot predict. “Almost like building an architecture without a precise end goal, APIs allow banks the flexibility to create offerings for different markets, open up innovation and allow the capability to build something unique. In time, the need to personalise services will become the new norm. APIs offer the best route to effectively meet these changing needs, and it will be necessary for institutions to fall in line or be left behind,” he states.

Compose not customise

Through APIs and cloud, FIs can pick and choose the features they want to offer or services needed and roll them out with minimal effort. Changes can be made internally without having to communicate with the vendor to install a completely new system, ensuring that each institution can compose a personalised and unique system.

Danilkis explains that “cloud solutions provide a myriad of benefits for consumers. “Through access to relevant data, banks can extract more precise insights and create a highly customisable experience that feels almost tailor-made for each client. Modern dev practices based on cloud tech also allow banks to deploy new capabilities, products and services at a quicker rate and with lower risk than a traditional, customised on-premises solution.”

He continues: “Building a modern cloud platform around a SaaS banking engine with modern API-enabled cloud components accelerates time to market and reduces overall costs. Banks that do not leverage APIs risk being left behind as the technology permeates the financial services industry. New financial technology is opening up previously unserviceable markets and with changing consumer expectations, this is the time evolve. Cloud-based fully digital banks like N26 embody the evolution of banking. They have increased customers numbers exponentially and having captured the European market, are entering the U.S. and Brazil.”

FIs must keep up with a changing market, which means re-thinking their legacy infrastructure. “Through APIs, you compose an architecture that is adaptable to the needs of the industry and its consumers. By providing highly tailored products and services at a quick time to market you satisfy the on-demand needs of the consumer,” explains Danilkis.

The developer experience

A few innovative US banks such as Capital One and BBVA Compass are forming data sharing agreements powered by APIs and in turn, have exposed some APIs to third-party developers to facilitate the innovation of new products. Alongside this, the US Treasury is working towards improving approaches to data aggregation for the benefit of consumers and FIs alike.

In the future, APIs will be the favoured method of sharing bank data because of security concerns. Traditional lenders and fintech startups with a desire to digitise will soon go beyond being a monoline provider and invest heavily in a new technology infrastructure.

The cloud can help build an open API sandbox to encourage innovation, simplify collaboration with third parties and develop new applications at scale by simplifying the developer experience. Danilkis states that the “industry standard use of Representational State Transfer (REST) APIs together with a focus on developing experience provided with sandboxes, self-service developer portals and software development kits (SDKs) underpins the new technology.”

The API economy has empowered in-house developers with the ability to innovate, adding new features and functionality like custom mobile apps, chatbots or voice recognition capability to their ecosystem in weeks not years. New products or iterations of existing offerings can be rolled out, integrated and modified at a fraction of the cost and time it would take compared to a siloed system.

“APIs enable a composable system architecture allowing multiple integrations from different payment networks, customer-facing solutions or custom-code for process automation, card processing services and other complementary cloud services. This gives institutions the flexibility to work with best-in-service providers in each area, while building in-house IP that differentiates them to their customers and creates lasting enterprise value,” Danilkis concludes.