Digital transformation is the catchphrase across businesses today. The one sector that is relying heavily on digital outreach now is the banking industry. With a slew of changes in the global banking including open banking, introduction of data privacy laws and regulatory changes like Basel III and IFRS upgrades, the industry has undergone remarkable transformation since the turn of the decade.

Keeping pace with this change, and sometimes, even leading this change, is technology. So much so, that legacy-based industries like banking are embracing new technologies to either build new-age business models or simply serve their customers better. APIs or Application Programming Interface is the new sought-after piece of technology that is changing customer banking experience.

A recent report released by Capgemini titled Unlocking the hybrid integration dividend: How to transform your business with hybrid integration and APIs reveals how modernized, hybrid integration and microservices-based Application Programming Interfaces (APIs) are the means to empower digital transformation and maximize capabilities to benefit from the API economy. A global survey of 818 senior IT executives working in large organizations with revenues of over €500m, suggests that a mature API-driven hybrid integration strategy is a contributing factor to business growth.

So why are APIs so critical in the digital transformation game? Vikrant Karnik, Executive Vice-President, and Cloud and Cybersecurity – Financial Services Leader at Capgemini explains that various changes taking place in the banking and financial services industry, and the quantum of customer experience, has altered the expectation levels within the industry.

Decoding the anatomy of apis in the digital ageWe are being shaped by extraordinary customer experience, which are stretching the boundaries of innovation and product. However, customer experience needs to match regulatory and data safety norms as well. All this rigour and structure remains in legacy systems, When you try to integrate exploratory technology with customer experience, APIs allow an organisation to de-couple processes.”

Understandably, there is a cost consideration to look into as well but Karnik says its important to see the value in API-driven strategy as a new business model. For instance, banks like Wells Fargo and Citibank have realized that they can deliver superior customer experience without changing a lot aesthetically. By altering and upgrading backend processes, a user’s interaction with a bank improves significantly. This can be achieved by APIs, says Karnik. “This is the larger play with banks and insurance companies.”

Before getting into the intricacies of API-driven strategies and their applications, Karnik says its critical to understand why a client needs APIs. “What problem is the client trying to solve? Are they doing it to introduce flexibility within their existing processes or will it form the base of a new business model? We aim to get a better understanding of these aspects,and I believe this is where exciting opportunities lie for companies like Capgemini. This can have a lasting impact on the banking ecosystem,” says Karnik.

Deeper Integration Between Technology and Financial Services

Capgemini is working extensively with various companies to assist and enable API-driven hybrid strategies. One such is US-based telecom operator T-Mobile, which runs more than 300 APIs in the US. T-Mobile has shaped a successful transformation journey by implementing microservices. Chuck Knostman, Vice President for Strategy and Technology at T-Mobile says, “C-level executives now ask us all the time: ‘Do we have APIs for this?’ When that conversation is happening at that level, it’s a true sign of transformation to me.”

The Capgemini report adds that 49% of Integrators reported revenue growth of five percent or more over the past three years, compared with just 23% of Deliberators. Furthermore, 41% of Integrators reduced the time needed to upgrade existing products by 50% or more (compared to 33% of Deliberators), and nearly half of the Integrator group (46%) aims to engage in the API economy to create new revenue streams (vs. 25% of Deliberators).

With the strong architectural foundation provided by cloud-based integration tools, APIs can do more than just act as instruments to unlock data. The findings reveal that Integrators are far more bullish about their ability to innovate, with 68% saying they are able to develop new products rapidly and bring them to market quickly (vs. 25% of Deliberators) with greater scalability, reliability and customization.

Another company championing digital transformation through an API-driven strategy is Wells Fargo Bank. It has an open banking channel called Gateway, launched nearly two years ago, with more than 30 use cases including payments, wire transfers, account integration services and forex online. While Wells Fargo has developed its own set of APIs for these processes, it has been working with Capgemini to enhance Gateway.

Of developing Gateway, Imran Haider, head of product, Open API Channel, Wells Fargo Bank says, “The success of a channel like Gateway reflects the speed and ease of integrations, thanks to APIs. Software integrations have conventionally been complex, extensive and time-consuming. With modern technology offerings like APIs, integrations can be achieved in weeks, with accuracy and consistency.”

With banks keen on driving superior customer experience through technology, APIs bridge the gap between the technology and business use-case and ultimately help banks deliver superior levels of customer experience.

Like Karnik, Haider too believes an investment in API-driven strategy can be a new business model for the financial services industry. “Depending on the digital strategy of the bank, the extent of API usage can be determined too. That’s the beauty of tech like APIs, which are malleable to business needs.”

Cybersecurity in the time of digital integration

With the immense mobility provided by technology solutions also emerges the very real risks posed by cyber threats and attacks. Haider explains, “From a bank’s perspective, security and privacy are critical. For our API channel, we have multiple layers of authentication, encryption as well as Control Tower.” Control Tower represents the latest iteration of Wells Fargo’s continually evolving mobile experience. At launch, customers have the ability to view certain digital financial connection points, digitally turn on and off their Wells Fargo Debit or Credit Card (including mobile wallet access and debit card in-person international transactions), and control certain data-sharing capabilities for Wells Fargo accounts. In the future, customers also will be able to control which devices, apps, and companies have access to their account information.

Wells Fargo is also working with other technology solution providers like Intuit. Last year, the company entered a partnership with Intuit, which allows Wells Fargo customers who use financial management tools such as QuickBooks Online, Mint, and TurboTax Online to use an innovative application-programming interface (API) when importing their bank account information. The API used in the Wells Fargo-Intuit agreement has been designed to utilize a secure, tokenized “handshake” between the companies’ servers. The API eliminates the need for Intuit customers who use QuickBooks Online, Mint and TurboTax Online to share their Wells Fargo usernames and passwords, and the need for Intuit to store them in order to retrieve Wells Fargo account data.

These practices ensure responsible data sharing and more user control, which is a big step towards improved cyber security standards.