Three essential benefits of implementing APIs

Since their emergence in the early 2000s, Application Programming Interfaces (APIs) have been revolutionising the way financial organisations operate, and they now form a pivotal part of the global digital infrastructure.

They have also been instrumental in powering the growth of open banking, a topic I covered most recently in October 2021. But there is more to financial APIs than just open banking.

Improving efficiency
In the white paper How APIs can help transform your practice, published earlier this year by Thomson Reuters, we identified three essential benefits of implementing APIs. The first is to improve efficiency by driving automation and streamlining internal processes. Using APIs to pull data automatically from different systems marks a major advance on time-consuming file transfers, data streams, and manual data entry, processes that are both high-risk and resource intensive.

Fabian Lehner, from St. Gallen’s Business Engineering Institute, gives an example from accountancy – rather than enter tax returns manually, taxpayers can authorise the inland revenue to obtain historical transactions directly from their bank. In his phrase, accountants and banks offering APIs are essentially “selling convenience”.

Advisory opportunities
Secondly, faced with more exacting client expectations and compliance obligations, firms are beginning to bolster their advisory opportunities. By creating an integrated digital platform where multiple data sources are combined and consolidated, financial organisations can save themselves time and resources. They can then move those resources into more valuable advisory services that will ultimately boost profitability.

This opportunity was highlighted in our 2021 Insights for Tax Professionals survey. We found that 95 per cent of respondents said their clients now want business advice from their tax advisors, with 68 per cent agreeing strongly. We believe this applies not only to tax specialists but also to institutions throughout the finance sector.

Thirdly, by targeting a niche area of interest, firms can differentiate themselves through specialisation. With the agile development of APIs, they can tailor their software to meet their clients’ business requirements more effectively and responsively.

For example, the management team of Pennsylvania-based Customers Bank initially adopted API technology to make their basic banking services more efficient. During the pandemic, it was one of the few banks that could connect via APIs to the US government’s Small Business Administration (SBA), enabling its business clients to benefit from the SBA’s Paycheck Protection Program.

The wider impact of the pandemic has of course been resonating throughout the financial services sector. Covid-19 has accelerated a technological shift for the entire industry. This increasingly digital environment is stimulating the growing interest and investment in APIs.

For some financial institutions like NatWest and its brand Royal Bank of Scotland, leveraging APIs has become absolutely central to their business. This can be seen from a Policy Blog interview, How APIs are transforming Royal Bank of Scotland, in which the bank’s head of digital, Jamie Broadbent, said he foresaw NatWest becoming “a bank of APIs”.

In future, he believes, banks will compete on the basis of the openness and accessibility of their infrastructure, and on how readily clients and third parties can interface with their services. This ease of connection will be central to their competitiveness.

Improving operational efficiencies
For example, in our collaboration with Interactive Brokers Group (IB Group). our API connects the Confirmation platform to its internal database. When IB Group receives a request through the API, internal information such as an account balance is instantly and automatically confirmed. IB Group managed to get its average response time down to less than a day and increased its confirmations completed by 52 per cent year on year.

Using APIs can improve operational efficiencies, mitigate risk, and, by leveraging data, help firms unlock new growth opportunities, including new products and services. This ultimately means greater probability but also allows firms to compete in an ever-changing environment.

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