Don’t buy a new core banking system without asking these five questions about APIs

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API - core banking

Inspired by the recent Cantilan Bank’s successful iCAN app launch, we list the key ingredients that power award-winning market impact.

You may not be able to see into the future, but you can still make your institution future-proof. Use any change as an opportunity for new customer acquisition. The key lies in the fundamental philosophy of your core banking system.

The changing environment

Things have changed rapidly in the world of financial services.

Traditional, long-standing institutions have found themselves challenged by the new breed of providers – neobanks without branches, quasi-bank providers, online lenders, fintech startups etc.

The fintechs have driven new variations on traditional financial products– like the Buy Now Pay Later craze sweeping the world.

Consumer habits and expectations have been transformed by their experiences of smartphone apps. COVID has accelerated the changes. During lockdowns, people sought new ways to conduct transactions without visiting branches, and ways of paying for things without physical contact.

For institutions unwilling or unable to cope with the changing landscape, the result can be extinction. In the Philippines, for example, the central bank ordered the closure of no fewer than five rural banks and coops during 2020 alone.

The maxim ‘adapt or die’ has never been more true

Adapting to an unknown future

Of course, no one can predict the future entirely. But here’s a prediction that is 100% accurate:

The future will be different from today. 

But that uncertainty shouldn’t be a problem. In fact, if you use that knowledge as your North Star, you can’t go wrong. All thanks to comprehensive banking APIs. 

What are APIs? 

APIs (Application Programming Interface) act as intermediaries between applications so they can communicate with each other.  

At their most basic, APIs allow one application to view, get, input or update information in the other by passing requests and returning data.  

We use APIs every day without even thinking about them. They facilitate everything we do on the internet: APIs form the connections between your browser and your search engine, for example. They allow you to ask where the nearest vegetarian restaurant is, and for Google to tell you. APIs enable applications to talk to each other.

APIs are often likened to a very efficient waiter in a restaurant. The waiter will take your order and – providing what you want is actually on the menu – will take it through the swings doors into the kitchens and pass it to the chef. The chef will prepare the dish and give it to the waiter who brings it back to your table. One of the beauties of this system is that, you don’t need to know how to operate the cooker or know where to find the ingredients. The proprietor is equally happy with the arrangement – you can’t take two eggs when you’re only entitled to one. Nor can your efforts to fetch the meal yourself result in you burning down the entire establishment. 

Like the best waiters, they are fast, invisible, and flexible enough to adapt every change in chef, menu, and customer. That’s why they are the key to the future. 

What makes APIs so powerful? 

There are probably a hundred reasons, but here are a few 

  1. They make connecting applications and services to each other almost as simple as ‘plug and play’. 
  2. Because APIs are built to common standards (REST and SOAP are the two most common) and use a common data format (JSON) they are easy for developers to understand and use. 
  3. APIs can bridge the gap between legacy systems and new technologies so the two can work together. 
  4. They make automation easier, making workflows faster and more efficient 
  5. They help manage security, and access to data. 
  6. Because they are purely intermediaries which carry requests and return data, they help maintain independence between applications 
  7. They make it easy to personalise the user experience. 
  8. They open up new possibilities to make use of existing data. For example, you can make better use of your data by plugging in more powerful Business Intelligence module than the one provided with your core system. 
  9. Most importantly perhaps, they aid innovation by vastly speeding up the process of new product development.  
  10. They can be valuable products in themselves because you can charge partners to use them. 

Why are APIs important in banking and finance? 

So much for the general. How about the specific applications in the world of banking and finance? APIs enable a core banking or lending system to connect to hundreds of other applications and services quickly and securely. These might include: 

Other systems  

  • ERP, HR,and accounting systems 
  • In-house applications
  • Other banks
  • Point of sale

Due diligence 

  • Credit scoring
  • Trust scoring
  • e-KYC
  • AML services

Intermediaries 

  • Field collection apps
  • Agency banking

Money management 

  • eWallets
  • Payment cards
  • Bill payments
  • ATMs

Loan management 

  • Direct loan disbursements
  • Loan repayment channels
  • Online loan applications

Management 

  • Business intelligence, reporting, data visualisation etc
  • Sending data to compliance authorities and audit systems

Messaging and communications 

  • Customer marketing
  • SMSmessaging 
  • Messaging channels (Viber, Whatsapp, Facebok.) 
  • Social media
  • Website forms
  • Chatbots

 Not just APIs but API-first 

Problems can arise when APIs are bolted on or treated as an afterthought. Web APIs have been around for two decades but it’s only relatively recently that developers are realised the importance of approaching products and systems in which the use of APIs is not only anticipated, but fundamental to the design from day 1. The philosophy is that the product or service’s reason for existing is to connect.  

The Oradian approach to APIs 

Our core banking system, Instafin, was designed to be open and accessible to external services from Day 1. Rather than try to build and maintain a range of specialist modules and services ourselves, we have always taken the view the best thing we can do in the interests of our customers is to create a robust, secure, and flexible core banking platform with the power of almost limitless interoperability. This gives our clients the freedom to connect to the third-party systems, services and applications which are most appropriate to their needs. The choice is theirs. 

Instafin API is designed to be a robust tool for developers to build and maintain in-house applications and services, reporting tools, programmatic or automated processes. 

 

Five questions to ask your core banking system provider before you buy

   0. Check Track-record. Which business successes were powered by that API?

Oradian API was the first banking cloud API to be certified in the Philippines – powering the pioneers like Cantilan and supporting their, now epic, digital transformation journey. Experience and learnings that come with it can not be easily matched, and the best-practice is translated to all future partners. The knowledge must flow. 

 

   1. Are APIs available for every aspect of the system?

Some companies only offer APIs to cover the ‘gaps’ in their own offering. In effect, this creates a ‘walled garden’ which prevents you from using third-party apps instead of their own. For example, a CBS provider with its own mobile banking app may not provide the APIs necessary for you to connect to a third-party version in order to tie you into using theirs. 

 

   2. Can you use all the APIs free of charge?

It is quite common for CBS providers to charge you extra for using certain types of API (or per API call), again to dissuade you from using third party applications instead of theirs.

  

   3. Do the APIs adhere to most common API standards?

For APIs to be understood and used quickly and effectively they should be created to common industry standards. Web APIs like REST APIs and SOAP APIs are the most common. 

 

   4. Exactly what API documentation is available?

Are the APIs fully documented? Do they cover everything that can be seen and done through the interface? Some providers may fob you off with example use cases, but these won’t be sufficient to allow your developers quickly integrate new services and channels. The API should be intuitive and simply work, un-noticed. Just like plumbing, it works and you are not necessarily aware of the pipes within walls. Can your developers focus on the service they are integrating instead of the complexity of the API?  

 

   5. Can you act Instantly? Push. Not just pull.

There are quite a few use cases (some of them quite important like new potential customer creation), where you want to act at once, to stay relevant to the customer while the attention is there. In these cases, you need to make sure that triggered APIs are available, so that your external systems or services are alerted. In important situations you can not wait for the next Pull request, which may be defined hours after the event, to become aware of the change – you need to act on customer expectations at once. Make sure that both Push and Pull type of APIs are supported for business critical use cases and services. 

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