For most of computing history, “application programming interface” has been a term used only by geeks to describe a mechanism by which applications integrate with one another.
But in the past few years, APIs have become a surprisingly hot topic, considered by many as a golden key to open banking and innovation.
While APIs are merely pieces of code that open a window through which data can pass from one application to another, some banks are offering and consuming them in creative ways to carry out very different business strategies.
Following is a detailed look at how they are being used.
Letting corporate customers offer banking
In a newer wrinkle, banks like BBVA are using APIs to let corporate customers white-label a bank product, like point-of-sale loans, and offer it directly to its customers.
"Banks traditionally have been big technology companies by definition because what we do requires a lot of data and interaction and record-keeping," Javier Rodriguez Soler, BBVA's U.S. chief executive, said in a recent interview. "Because of that we have very strong core systems, more than other industries. In letting corporates connect to our core through APIs, the goal is to serve our corporate customers better and these third parties end up serving retail customers who may end up becoming BBVA customers through this connection."
For example, if Target were a BBVA customer, it might offer its customers loans at the point of purchase through a BBVA API. The customer may not know BBVA is in the background, and BBVA is OK with that, Soler said.
Letting corporates pull bank account data into their apps
In another use of APIs that banks have been pursuing for several years, institutions let corporate customers pull their own bank account data directly into their accounting, enterprise resource planning and other apps to streamline workflow. Instead of having to stop what they’re doing, log in to online banking, get information and cut and paste it into accounting, they do whatever payments and banking activities they need to do right within their program.
Silicon Valley Bank, Bank of America, JPMorgan Chase, Wells Fargo and Citigroup already offer this and Eastern Bank is building an API to let one of its larger customers pull bank transaction data into its accounting system.
“The idea there is that corporates have traditionally been batch, and using an API is giving them the ability to get information in real time,” said Patty Hines, head of corporate banking at Celent.
In one use case, banks work with payroll companies that want to let gig economy startups pay their workers — Uber drivers, dog walkers — immediately rather than making them wait two weeks, Hines said. Another use case is insurance companies that want to disburse funds to disaster victims right away.
“Every bank has a slightly different strategy and a slightly different audience for their idea,” Hines said.
Citi’s Treasury and Trade Solutions group, which provides corporate clients in 98 countries with services like payments, collections, liquidity management and working capital, has created 54 APIs for this purpose.
Corporate customers use them for balance inquiries, statement initiation, statement retrieval, checking the status of a payment, setting up push notifications when certain types of credits came into an account, and foreign exchange — customers can send an API call to make a rate inquiry or initiate a cross-border payment, for instance.
Citi also embeds its APIs into partner systems, including ERP and treasury management software from SAP, Kyriba and Oracle.
"As soon as customers start using these platforms to do their in-house operations and treasury, it is a plug-and-play experience for them after authenticating credentials to connect into our services directly,” said Tapodyuti Bose, global head of channels and enterprise services, Citi Treasury and Trade Solutions.
“All this information is with us, and has always been available, but there have been less efficient and more batch-oriented methods of rendering this back to clients," Bose said.
For instance, banks have always provided statements, first on paper and then over email.
“So you could send maybe twice a day, maybe every 15 minutes,” Bose said. “Here information can be made available using APIs on an on-demand basis. It’s a continuous stream, orchestrated by a customer’s needs.”
In the first 12 months after launching its APIs, Bose’s group handled 60 million API calls from corporate clients.
“That tells you the amount of hunger these companies have,” he said.
Working with fintech partners to help the bank innovate
Eastern Bank and Radius Bank are among the smaller institutions that work with fintech startups to bring their innovations to bank customers. Radius Bank works with Aspiration, LevelUp, Prosper and Mantl, among others.
Eastern Bank’s developers have created roughly 10 APIs, mostly for this purpose, said Mark Leonard, senior vice president and chief architect at Eastern Bank.
Two years ago, the bank migrated from FIS’ consumer electronic banking software to Infosys’ Finacle.
“That was a significant first step in being ready to do this, because now we own the rails of our own online and mobile solution and it’s built to be API-facing,” Leonard said.
The bank bought an Apigee API portal.
“Being a regional community bank, we want total control of where our APIs are going,” Leonard said. “We’re not ready to offer our APIs to the great wide world at this point. We have dedicated partners we want to build out solutions with; we want to have the control needed to offer the APIs, while maintaining control over what our partners can ultimately do with them.”
The Eastern Bank Labs group leads relationship building with fintech partners that can further help the bank offer innovative products to its customers.
“Open banking provides a huge competitive advantage that lets us compete with the largest players in the market,” Leonard said. “Think about all the development that’s going on now in the fintech space, we would need thousands of developers to be working on payments, small business or P2P lending, crypto, or personalization. To build out all those things would require massive resource investment. But building this open banking platform allows us to participate in that world with fewer resources. Now we can focus on looking for the partners who are offering great solutions and bring them to our customers.”
Sharing data with data aggregators, on a path to open banking
Many banks, including Wells Fargo, JPMorgan Chase and Capital One, set up contracts with data aggregators like Intuit, Plaid, Finicity and Yodlee that spell out what data can be shared via API and how.
This began as an alternative to the universally disliked practice of screen scraping, where a data aggregator obtains a bank customer's username and password, and copies and pastes their banking information into an app.
It is a step toward open banking, in which the consumer has full control over which elements of their bank account data are shared and with whom. The U.K.’s PSD2 directive requires all banks to expose account information to any accredited party.
India has created a Unified Payments Interface for the exchange of information. A connected ecosystem of banks and payment providers has been forming around it; Citi is one of the largest participants. For Citi, the driver to participating is what’s happening in the market, Bose said, “because our clients are going directly to consumers.”
Mutual funds, for instance, are getting into digital distribution to individual investors, he said. An individual investor might want to invest $1,000 under a specific risk profile. The customer might enroll as a prospective customer on the mutual fund’s website. That mutual fund then needs to be able to pull that money every month from whichever account the customer wants.
As the mutual fund’s bank, Citi could use the uniform payment interface infrastructure to pull money from the accounts and notify customers as soon as the money is there.
“On-time, real-time information to them is very important for their business models, whether it is relating to payments or executing on their customers instructions,” Bose said.
E-commerce clients are selling goods directly to their end customers. In some countries, credit card penetration is less than 3%, so the payment needs to come in from a bank account.
“If you are an e-commerce merchant, before you ship the goods, you need to make sure the money is being pulled in real time and you get Information that the money is good before you dispatch the goods,” Bose said.
Citi handles that money transfer and notification, again, through Unified Payments Interface.
Open banking is inevitable around the world, Bose argued.
“It’s already in many of these emerging-market countries where we do business. This is taking off even in developed markets,” Bose said. "It helps to enable digital commerce both by smoother payments and by increasing sharing of information between banks."
“When you move from B2B to B2C, the value of the transaction decreases and volume increases,” he said. “As the value reduces, the friction of interchange begins to hurt you even more. So to the extent you can go directly to banking rails, to digital wallets, you try and avoid that friction.”
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