Payments technology moves at a fast and furious pace. Legacy systems and outdated frameworks can hinder financial institutions from evolving at a similar pace, but APIs can bridge the gap between dated systems and emerging business and consumer preferences.
Consumers are demanding faster, accessible payments services that are both online and personal. To keep customers loyal and the business booming, companies must adapt, quickly. With the support of the latest technology, this is doable; the problem is that many payments companies have not invested in these tools and now find themselves completely unprepared for modern consumer demands. In the past, this negligence could have proven disastrous, especially for those without the resources to develop new products. Fortunately, APIs have changed the game.
An API, or application programming interface, functions as a gateway between two applications. When this gateway is between two internal programs, it ensures optimal data sharing and streamlines operations. However, when between an internal program and an external partner’s software, it enables new services to be offered on the platform; and when between an internal program and the public — it promotes community development and mass commercialization. What’s more, these are available in an affordable, ready-to-implement format.
APIs represent a significant development at a time when companies must react to consumer shifts and introduce new services at scale, at speed, and on budget. Rather than merely offering growth opportunities, APIs address some of the biggest challenges facing financial institutions (FIs) today.
Top Challenges for Payments in 2022
Here’s a quick rundown of some of the top challenges for payments:
As legacy institutions that deal with sensitive materials, FIs often have intricate processes and safeguards in place. Making changes to systems is expensive, laborious, and often ineffective, as complex integrations threaten to snag operations. In particular, companies that have invested in building their own technology framework are less inclined to replace it with something new. Still, these legacy infrastructures must be updated to support new services and efficient integrations, or they will bleed money, resources, and opportunities — a death sentence in today’s digitizing world.
Technology solutions are evolving, but so are cyberattacks. Due to the private, valuable nature of payments services and transactions, FIs must do everything possible to protect data from any potential threat. Data pipelines and other program integrations are critical for improved performance, but they open up companies to greater risk. The challenge is to balance unerring security with greater access to consumers and external partners.
Nimble FinTech Companies
The growth of FinTech has been staggering; Statista estimates that there are 10,755 FinTech start-ups in the US alone. This new market has the potential to become an important collaborator with more traditional payments services. On the other hand, if FIs do not take advantage of this opportunity, they risk turning their allies into competitors. FinTechs are innately tech-savvy and focused on innovation; they will overtake payments companies if legacy institutions don’t commit to digitization.
The good news is that there is more data available today than ever before. The bad news is that most companies cannot translate data into valuable insights. By itself, data is useless; it becomes valuable only when analyzed and placed in context. Today’s FIs have access to large volumes of data but lack the tools they need to quickly and effectively analyze it to glean the insights they need.
How Open APIs Enable a Dynamic FinTech Ecosystem
For payments companies to remain relevant in today’s economy, they must strategically deploy APIs. APIs make it possible for payments companies to incorporate new tools into their operations quickly and cost-effectively.
FIs don’t need to invest in developing the technology from the ground up, as programs have already been designed by FinTech experts and made readily available. When consumer behavior shifts and new services emerge in the market, APIs help businesses react quickly and update their offerings without straining internal IT teams.
APIs also enable payments companies to benefit from the provider’s expertise regarding security and data management. These programs are designed to be secure, requiring minimal additional effort from FIs. APIs also improve data sharing across departments, reducing the chance of data silos and ensuring data value is maximized. With such an efficient deployment, FIs can be confident they won’t fall behind the competition.
The Future is API-fied
The opportunities created by API-fication are vast, if not fully realized. The financial sector has been slower to adapt to our new digital environment than other industries, but this is changing. In fact, Statista found that senior banking executives believe that collaboration with FinTechs on products and distribution is the most important opportunity to generate non-traditional revenue (70%). One thing is for sure: APIs will only become more important to the success of payments services.