Application Programming Interfaces (APIs) are transforming all kinds of verticals, improving connectivity between computers, yes, but also businesses, and even departments within businesses.

Matt Naish, head of product strategy at FISPAN, told PYMNTS that this connectivity can spur new innovations in financial services, to the point where banks can offer “risk as a service”.

Know-your-customer (KYC) and know-your-business (KYB) processes are becoming increasingly sophisticated within financial institutions (FIs), and APIs allow them to integrate more data and analytics to help determine legitimate transactions and entities (and lending exposure) in an era of increasing money laundering and geopolitical risks.

“You’ll see a lot more banking and risk as a service, especially as we see an acceleration of real-time payments and open banking,” Naish said.

API usage is on the rise across all industries. Yet only 30% of FIs were using them at the start of 2021, indicating that there is still an opportunity for on-the-ground modernization within the banking system. Sixty-four percent of companies said they do not have full integration between cash management systems and enterprise resource planning (ERP) systems.

Necessary cultural and mentality changes

But as Naish told PYMNTS, whether in banking or enterprise globally, “the lack of integration, generally speaking, is not a technical issue. Technology bends to our will.

Read more: PYMNTS Intelligence: Removing Commercial Banking Barriers with APIs

The problem lies in change management and process management, he said. Call it a kind of cultural barrier. He cited a statistic from not too long ago: 50% of customer relationship management (CRM) implementations fail, not because of the software, but because of the inefficiency of layering new systems on an existing infrastructure.

Within financial services, there are different ways to approach API adoption – they can build them themselves, they can buy APIs and bring them in-house, or they can integrate with partners and platforms. -forms (such as FISPAN), he said.

The collaborative model helps banks future-proof their technology businesses because, after all, there’s no telling where the banking industry will go over the next decade and a half, he said.

By engaging with platforms, FIs can position themselves for growth in integrated banking services, real-time data exchange and especially real-time payments. About a third of neobanks surveyed said partnering with FinTechs reduces the time to market for rolling out new products.

See more : APIs to Drive Banking-as-a-Service Growth in 2022

Naish noted that many financial institutions are having spin-offs — purely digital operations that cater to younger, more tech-savvy consumers. Through the partnership model, banks and digital startups can competently manage new offerings in these nascent markets and enable these new experiences.

The danger lies in the prospect of regulating to the point of stifling innovation. In this context, he recommended a “gradual increase in the modernization of regulations”.

Measures such as the EU’s General Data Protection Regulation (GDPR) are helping to modernize consumer protection and are unlikely to need revamping for several years, he said. Bringing these systems together drives innovation and makes it easier to manage compliance issues.

Read also: Convenience pushes consumers to open the banking system

Looking ahead, Naish said API adoption will only accelerate.

“To say they will have a lasting impact is an understatement,” he said, “because APIs bring the agility of certain networks to the forefront across all industries and lay the groundwork for innovation.”