On August 8, 2017 Oracle released its API-based Banking Payments solution to help banks accelerate the payment process. Oracle’s press release states that this banking software solution is based on ISO 20022 and supports Fedwire, U.S. Automated Clearing House, Swift as well as SEPA guidelines and standards for electronic data interchange. Still, standards compliance is not what makes the solution so remarkable. What really matters is that Oracle Banking Payments solution popularizes APIs among banks, paving the way towards Open Banking.
Why embrace Open Banking
The concept of Open Banking means that banks provide public APIs for third parties so that they could develop their own applications and connect them directly to banks’ systems. In this way, APIs facilitate effective collaboration between banks and fintechs, transforming bank customer experience with a rich variety of payment apps.
Though banks have long owned all customer communication channels and developed banking software mostly in-house, the global move towards Open Banking is unavoidable, because fintech solutions are delivering a constant stream of innovation that banks cannot replicate. Quite quickly, fintechs managed to gain success among customers by focusing on their needs and offering exceptional customer service. As a result, customers expect all banking services to mirror the speed, ease and convenience provided by fintechs.
Unfortunately, U.S. banks usually lag in providing the same frictionless customer experience. Although the cooperation between banks and fintechs looks logical, the absolute majority of financial institutions still give little credence to APIs.
Banks shouldn’t fear providing APIs
Providing APIs doesn’t necessarily mean losing customers. On the contrary, banks can find new opportunities to extend their brand and services outside the banking environment. In this case, APIs will just serve as glue connecting fintech and third party apps with banking systems. As a result, banks will be able to transform themselves into platforms that offer banking-as-a-service and monetize publicly shared APIs. Still, for successful integration, banks need to provide high-quality APIs.
How to ensure high-quality APIs
High-quality APIs rest upon banks’ ability to share accurate, timely and comprehensive customer information. However, for some banks this may be a rather challenging task because of their obsolete core systems. If a bank’s back-office system is so intricate that it reminds sodden spaghetti, it will be very difficult to collect all needed information and share it through APIs.
Thus, to embrace an API-driven business model and benefit from Oracle Banking Payments in particular, banks should rethink their technology stack and take care about their core systems. Otherwise, they may be late for the API party and consequently risk losing revenue.
It’s high time to shift from skeptical to strategical mindset
Providing APIs for third parties may sound frightening for banks, as they will have to rethink their role on the financial services market and consider how to distinguish themselves under new circumstances. No doubt, the appearance of fintechs reshapes the banking industry. However, if banks shift their skeptical mindset and treat fintechs as partners rather than enemies, they may find new revenue streams and introduce innovative banking solutions that help to increase customer loyalty.