Despite possible vulnerabilities, APIs can speed up innovation and operational transformation. Here is one expert’s pitch for API-led banking digitalization.

With the events of 2020, accelerated digital transformation has affected how banks interact with customers globally. Across the Asia Pacific region, banks quickly adopted contactless and smart services leveraging existing mobile apps to ensure that customers were able to maintain access to core services.

The focus on digital services is expected to continue this year—as customers retain the habits they adopted in 2020; the expansion of open banking in the region will encourage more collaboration with third parties to enhance customer experiences. Banks are now expected to meet these new demands from the market quickly. In a sector that is rife with legacy systems, this creates the challenge of quickly delivering innovation while maintaining regulatory compliance and reducing operational risk.

It is now time to think beyond integration in the traditional sense and look toward achieving composability through application programming interfaces (APIs). With this tech, banks can democratize innovation and move even faster, using data and capabilities as building blocks that are consumable and reusable.

As such, financial institutions will be able to quickly compose and recompose building blocks to create new products and services to meet the rapidly changing market demands.

Continuing operational risks

Going forward, two critical operational risks for banks to manage are Security and Third-party Collaboration.

The surge in digital transactions during the pandemic had made it more difficult to identify suspicious or fraudulent activity, thus heightening security risks for banks. Leveraging the capabilities of third-party collaborators can enable quick responses to customers and more innovative services at lower operational costs. However, be aware that vulnerabilities in third-party systems and processes can also pose operational risks for banks in the areas of compliance, service availability and security—potentially devastating to a bank’s reputation.

Consequently, some banks have attempted to address these factors by creating specialist digital teams that are isolated from the rest of the bank to reduce operational risk and remove constraints to innovation. However, this approach can actually silo innovation and prevent it from reaching the wider bank organization, which may already be hindered by monolithic technologies and systems.

Compounding the issue further may be internal bottlenecks that prevent projects from reaching completion. According to MuleSoft research, 60% of IT leaders polled in 2020 in the financial services sector were not able to deliver all of the projects they committed to. In the current competitive environment these challenges are heightened: rapid response and project delivery at speed is critical.

To meet the needs of the competitive environment, banks need to overcome these barriers to innovation without creating unacceptable risks.

The API-led approach

API-led connectivity provides banks with the ability to easily plug and play applications, data and devices—without the tight couplings that increase risks and slow the business down when changes are implemented.

Such interfaces effectively act as gatekeepers for data and processes, providing a natural location to apply security controls, and monitor who is accessing resources. For example, APIs can be embedded into customer processes so that unusual activity, such as a Hong Kong customer’s account being accessed in Malaysia, can be identified early and resolved in the event it is a threat.

APIs also provide a secure, standardized mechanism for onboarding and data-sharing between an ecosystem of third-parties. Once a bank’s data is securely exposed within a cloud environment, it can be easily used to enable high availability of services and create new customer-facing applications.

For example, one global bank built APIs that securely unlock access to core banking products to enable collaboration with partners, accelerate innovation and open new revenue channels. These APIs expose the bank’s core capabilities securely in a multi-cloud application network, unlocking and unifying legacy systems to enable new services and bring new offerings to customers, faster.

The APIs help enforce policies related to security and provide the capability to feed downstream online fraud detection systems, creating an additional layer of security around critical systems.

To thrive in today’s banking landscape, banks must innovate quickly at scale and speed to meet the ever-changing demands of the market, while maintaining the security and integrity of their systems. By embracing API-led connectivity, banks can quickly enable innovation throughout the organization in the short-term, while creating a future-proof foundation to thrive in a future shrouded in uncertainty.