Articles

Open Banking API Challenges: 4 Areas That Need Intervention

By Steven Chung and Bob Paajanen

As financial institutions find their way into the digital world, they face competition from several non-bank forces, including FinTechs and Big Tech companies like Apple, Google, and Amazon. FinTechs and Big Tech have begun rewriting the rules for the finance industry creating new ways of banking and new revenue streams. By offering speed, innovation, and unbundled financial services, digital non-banking entities are luring away customers from banks and credit unions. Open banking promises financial institutions an entry into the changing banking ecosystem by tapping into third-party application programming interfaces (APIs). But without the right strategy, banks may find themselves saddled with high costs, low time to value, vulnerable data systems, and no ROI to show.

API Challenges

As API adoption grows, so does the concern around how these APIs will be built or bought; how they will be managed; and the security and privacy risks that they present.

API Standardization and Documentation

The biggest concern around API adoption is standardization with more than 52% of organizations finding it a challenge. Unfortunately, there is no universal identity management framework which means that companies must rely on their developers to build their own management systems. Without proper documentation or style guides, different teams of developers within the organization may come up with varying standards for how the APIs are built and consumed, leading to issues with integration and management. The ‘State of Software Quality: API 2021’ study by SmartBear found that 54% of respondents pegged “accurate and detailed documentation” as the second most important characteristic they needed in an API as an API consumer, ease of use being the topmost. Yet, close to 40% of the respondents did not use API management software or were using an in-house API management tool.

API Security

As banks use more APIs to enable digital businesses and provide web and mobile experiences to customers, the chances of security breaches also go up. There have been several incidents of API attacks and data leaks this year alone. API security is made worse by the fact that many organizations lack an inventory of the APIs they create or use from third parties. Research firm Gartner found that the common theme among many of the API breaches was that “the breached organization didn’t know about their unsecured API until it was too late.” Sadly, there is no tool that will automatically discover vulnerabilities in the APIs. Implementing API threat protection and access control will require endpoint security (processes, infrastructure, and protocols). Without an API management platform in place, this will present further challenges.

“By 2022, API abuses will move from an infrequent to the most-frequent attack vector, resulting in data breaches for enterprise web applications.”

Gartner (2021)

API Governance standards and privacy regulations

Government-dictated compliance frameworks around APIs are still some time away for Canadian financial institutions. This means that developers at banks and credit unions must rely on varying standards, including security standards, when it comes to how API integrations will work and be used. Without governance standards, financial institutions run the risk of exposing themselves to fraudulent third parties and exposing customer information in ways that could be used against their interests.

API Reliability & Performance

To support new functionalities and user experiences, developers in financial institutions are relying more and more on third-party APIs, APIs from business partners, and from other business units within the enterprise. Many of these APIs are licensed from providers that also look after their daily operations. Due to the composite nature of these applications, an outage with one third-party API can impact any application that is using that API. As of April 2022, there were close to 7.8 million failed API calls in the UK according to Open Banking Implementation Entity (OBIE). The financial entities with the most failed calls are the big banks including Barclays, Lloyds, and HSBC. Frequent API errors create a negative impact on customer experience and may lead to discontinued product use.

Is your bank ready to adopt open banking?

API integrations are a necessity as we move towards an open banking system. Financial institutions must have a clear strategy on how they want to implement, govern, monetize, and market APIs to ensure a frictionless customer experience and better business results.

Blanc Labs has partnered with Axway to provide specialized solutions that make API integrations and management more efficient and cost-effective. Benefits of our unified API platform include:  

Increased productivity, as developers are easily able to find and repurpose APIs instead of duplicating efforts or wasting time searching for them.  
Less technical complexity by unifying and simplifying API services across the organization 
Better security through a unified view of all APIs 
Faster upgrades of legacy systems through an API-first layer allowing you to add new services more easily 
More robust governance through centralized documentation that multiple teams of developers can reference

Book a demo or discovery session with Blanc Labs to learn about the impact of our API solutions for banking. 

Articles

Are your APIs causing more pain points instead of solving them?

By Steven Chung and Bob Paajanen

Now, more than ever, banks are looking at ways to modernize their core technology to meet customer demands for speed, personalization, and seamless digital experiences. For the banks, a large part of that involves securely exposing customer data to third-party systems and consuming data from them. A simple example of this is using your bank credit card to pay with an app such as Google Pay or Apple Pay. For this data exchange to take place, banks build their own application programming interfaces (APIs) or use third-party APIs to interact with other systems. From a digital transformation viewpoint, APIs are indispensable in making banking services more open.

A study on APIs in banking by McKinsey found that nearly 70% of the surveyed banks planned to double the number of internal and third-party APIs and triple the use of public APIs. However, not all API integrations are successful. Close to 40% of the banks mentioned above did not have an API strategy or were still evaluating APIs. Mismanagement of APIs only increases operational issues, decreases productivity, pulls up costs, and delivers incremental results at best. Here we explore five API integration challenges and how to overcome them.

API Integration Challenges

Put simply, APIs are supposed to make it easy for disparate systems to work together. But poor integration can have the opposite effect, leading to silos, duplication of efforts, and rising costs. Some of the API integration challenges include:

Technological Complexity
High Costs
Security Risks
Time Consumption
Varying systems

Technological Complexity

API integration is not an easy process. In fact, of all the digital transformation initiatives, API integration may be the most daunting. The reason for this is that integrating APIs requires an overhaul of the bank’s core systems. Understandably, many banks and credit unions are reluctant to change their core systems in one go as seen in the chart below. Yet, 75% of banks state that the number one reason for focusing their corporate banking strategy on APIs is “improving internal corporate banking processes, workflows and product management.”

Intention to replace core systems

To carefully integrate APIs while upgrading core systems at a pace that is suited to the bank requires a team of experts including highly skilled developers that come with a heavy price tag.

High Costs

Hiring a team of experts to execute APIs is only one part of the cost of integrating APIs. The question for many financial institutions is one of build or buy as this requires significant financial resources, a dependable developer ecosystem, as well as a strategy to monetize these APIs so current costs may be justified. Building a single API can cost upwards of $10,000 (as of 2020) depending on the complexity of the integration and the times it takes developers to build it. Buying APIs may come at a lower cost. Either way, there is no getting around the expense of building APIs and integrating them with core systems.

Security Risks

In Canada, the number of stolen records went up by 4,379% between 2015 and 2020. A data breach in Canada costs approximately $6.35M CAD. The use of APIs is reliant on web-based applications, which means that they are more open to threats from hackers and ransomware. Add to this the fact that a data breach can severely damage the reputation of an organization. API integration projects require hiring a team of security experts as well as updated security protocols.

Time Consumption

Setting up an API connection and integration module can take anywhere from a few weeks to months. This is the time when the development team will learn the logic and architecture of your platform and work to reduce bugs, among other things. Financial institutions that choose the wrong API solution may find that they are losing out to the competition by coming in last.

Varying systems

Within APIs and API systems, there are all kinds of architectures and software. Every system has its own logic and therefore each integration has its unique challenges. With every new system that developers work with, they need time and expertise to integrate APIs with those systems. Therefore, with multiple integrations, the process does not get faster and only becomes more complex

How to overcome API integration challenges

API integrations are a necessity as we move towards an open banking system. Financial institutions must have a clear strategy on how they want to implement, govern, monetize and market APIs to avoid high costs, duplications, and incremental gains.

Blanc Labs has partnered with Axway to provide specialized solutions that make API integrations more efficient and cost effective. Benefits of our unified API platform include:

Increased productivity, as developers are easily able to find and repurpose APIs instead of duplicating efforts or wasting time searching for them.
Less technical complexity by unifying and simplifying API services across the organization
Better security through a unified view of all APIs
Faster upgrades of legacy systems through an API-first layer allowing you to add new services more easily
More robust governance through centralized documentation that multiple teams of developers can reference

Book a demo or discovery session with Blanc Labs to learn about the impact of our API solutions for banking.

Articles

Three Reasons Financial Institutions Are Losing Out to FinTechs

…And How to Keep Up with Digital Natives

by Bob Paajanen and Charles Payne

The way we bank has changed forever. While FinTechs have the latest technology innovations, what they don’t have is decades-worth of relationships with customers and large swaths of Big Data. Financial institutions need to recognize this advantage, leverage their data, streamline processes, and thereby empower their relationship managers if they want to compete with their new-age rivals.

Mismanagement of Data

Most financial institutions have multiple customer-facing systems that operate in their own silos. As many as 50% of banks and credit unions state that they have trouble accessing their internal data. Without a single unified view of their customer, banks and credit unions are unable to collect, process, or indeed deploy insights that will enable them to cross-sell products and services to their customers.

The services gap left by financial institutions is especially felt in commercial banking where FinTechs are sweeping up SMBs with targeted products and quicker access to funds. A prominent example of this trend is Shopify, which started out as an e-commerce platform, but is now the tenth-largest provider of financial services to SMBs. Another example is Stripe, which has created an end-to-end lending API (application program interface) as its next offer to SMBs.

Paper-heavy processes, and disparate data management systems are some of the major causes of this issue. As the finance industry moves toward open banking, it is imperative that financial institutions unlock the value of their data and translate it into actionable insights so they can improve their languishing businesses.

Lack of Efficiency

A 2019 Gartner report estimated that process automation, including document processing, could save financial institutions 25,000 hours of avoidable work per year. With advances in technology in the last three years, it is not hard to imagine that this number may have gone up even further.

Most of the productivity loss mentioned above has been attributed to human error. This is hardly surprising when many financial institutions continue to use paper-heavy loan origination models. Without automation, document processing is rife with efficiency and security issues including document mishandling, collaboration on email (generating multiple copies of the same document), versioning issues, loss of time to find the documents when required, a lack of compliance, and a lack of remote access.

Since the pandemic, consumer expectations have changed dramatically. Close to 60% of customers today are open to completing their mortgage applications entirely online without support on the phone or in person. Even more pressing than the platform, is the need for speed, with customer satisfaction falling 15 percentage points for approvals that take longer than 10 days.

With unprecedented demand for mortgages, financial institutions must speed up intake, underwriting and decisioning processes faster if they want to keep the customer’s business.

Costs

Inefficient loan origination processes lead to rising costs. On average, loan origination costs $7-9k per application. That is over and above the cost of productivity loss, estimated to be $878,000 (for 25,000 hours lost per year) for a company with a 40-person finance team. This cost is invariably passed on to the customer who may end up paying higher fees and charges compared to what they might pay if they opted for a non-banking entity.

The FinTechs Are Coming… And how to slow them down

As a result of service gaps and inefficiencies, customers from both commercial and retail banking have been veering towards nonbanking entities for loans. 50% of Canadian SMBs in 2021 felt that they couldn’t maintain their growth strategies “due to a lack of capital.” Today, nonbanking entities, account for more than 70% of total originations. By using automated processes and digital interfaces, non-banking entities or FinTechs are 25% cheaper than the industry average and can deliver a decision 30% faster compared to other financial entities.

In the age of Open Banking, it is important that financial institutions update their legacy processes and unlock the potential of their data if they want to survive.

The automation journey begins with intelligent document processing. Blanc Labs provides a 360-degree IDP (Intelligent Document Processing) solution that can:  

Automate workflows for document collection, digitization, and analysis 
Replace manual effort through intelligent data capture 
Connect with third party data providers for analysis and insights 
Analyze document data, provide status alerts, and flag fraudulent entries 
Secure documents in a drop box

Deploy on-premises, in the cloud, or as a hybrid model

Book a demo or discovery session with Blanc Labs to learn about the impact of our IDP solutions for banking.  

Articles

4 Ways APIs Can Improve Your Bank

by Bob Paajanen and Steven Chung

With the urgent need to catch up with FinTechs and appease customers, there is a lot of discussion today around digital transformation in banks and how technology can improve both the customer experience and the bottom line. The word API is thrown around, but few understand the tangible impact of how APIs can improve your bank. In this article, we break down what APIs can do and the areas in which they can significantly change the ways in which banks operate.

What is an API?

An API or Application Programming Interface allows disparate systems to communicate with one another. Think of APIs as waiters at a restaurant—they take your order and relay that order to the kitchen. The kitchen prepares your order, and the waiters bring it back to you. The waiter here is a middleman that relays important information that is within the framework of the menu (defining what information should be shared) in a format that is understood by the kitchen (structured data).

The most common examples of APIs include “login using Facebook” or “login using Google” which use APIs to connect your Fb and Google accounts to a third-party website.

The use of APIs increases flexibility, increases efficiencies and therefore improves the user experience.

What are banking APIs?

Banking APIs are specific to banking software. Since the pandemic, the demand for APIs has grown as customers expect real-time 24/7 support across all banking functions. Using APIs can allow the bank’s systems to talk to one another thereby providing the customer with a unified and seamless banking experience.

The use of banking APIs is up from 35% in 2019 to 47% in 2021 and another 25% of banks and credit unions plan to invest in APIs by 2022.

Using APIs not only connects legacy systems to one another but gives financial institutions the opportunity to reimagine how their operating model works, what the customer journey should look like and how they would like to interact with customers. Indeed, the use of APIs today, according to PYMNTS, could be compared to getting the “proverbial plumbing in place to enable new digital experiences.”

APIs and the future of Open Banking

Open banking is a system where banks enable their financial data to be securely accessible to third parties with the use of APIs. Using APIs gives financial institutions access to new banking technologies such as digital lending, online mortgage approvals, digital payments, account opening, engagement tools, analytical tools and a host of other functionalities, while also empowering customers to have more control over their data.

What can APIs do for your bank?

There are many types of APIs created for a variety of functions. In this article, we will focus on four of the most common types of banking APIs and how they can help in your digital transformation and modernizing efforts. These are:

Integration
Connectivity
Platform Banking
Innovation

Integration

Banking systems set up even five years ago are now considered legacy systems. Such legacy systems don’t usually communicate well with newer technologies. Failure to keep up with the consumer or regulatory demands of today may render the bank obsolete. This is where APIs come in. Instead of replacing legacy systems—a time-consuming and expensive process—APIs can help legacy systems communicate with new software at a fraction of the cost and twice the speed. A good example of APIs integrating banking systems would be providing a branch locator (using mapping software like Google Maps) on the bank’s mobile app.

With advancements in technology and frequently updated regulatory requirements, integrating legacy systems with newer technologies is no longer a choice but a necessity.

Connectivity

As services such as personal financial management become more automated across various functions within the bank, there is a growing need for better governance of user data, including customer checking and credit history.

Because APIs also regulate the information that they share between systems, they can filter out relevant information to a third party without disclosing every detail. They can also time how long the information will be available to a third-party program. For example, credit history may be available for only 30 days.

APIs available today, especially REST APIs(or web-based APIs), are lightweight, faster, more scalable, and offer real-time connectivity, making them a perfect use case for mobile applications.

Platform Banking

Many non-bank businesses such as FinTechs today opt for the banking-as-a-platform strategy, where APIs are used to connect the non-bank business to a bank. With the use of APIs the non-bank business can use the bank’s license and regulatory framework, thereby offering banking services without being banks themselves. This means lower operations costs, which they can pass on to the customer in the form of lower fees and better rates. Banks on the other hand can take advantage of the newer technologies offered by the FinTechs to improve their service offerings without having to build them themselves.

An example of this is Tangerine Bank, a no-branch “bank” that offers banking services like savings and checking accounts using Scotiabank’s banking license to operate. APIs allow seamless, real-time connectivity for Tangerine customers, allowing them to access their banking information on their mobile app.

Innovation

The ability to plug-and-play innovative technologies means that banks can now offer a variety of new products while creating better efficiencies at the back end. Using APIs, banks can circumvent an overhaul of their legacy systems, improving bits and pieces at a time. This will save banks both money and time. APIs also allow banks to integrate products and services in a modular way. This gives them a wider choice of vendors, and with that comes better control of price, quality, and delivery.

Banks need not always depend on third parties to add on new products and services. If they decide to go their modernization route themselves, they can use APIs to standardize the process and add tools without making drastic changes to the underlying system—something that most banks prefer.

APIs can also help connect one banking system to another. For example, an API can connect the lending workflow with a customer’s personal banking workflow. This connection can provide better efficiencies, reduce manual work, and improve employee satisfaction. APIs can also integrate automation tools such as end-to-end journal entries, loan document processing, and report creation on top of legacy systems, saving time and cost. A 2019 report by Accenture predicted that banks would see a productivity gain of US$ 59 billion by 2025 thanks to automation. This number is probably higher in the context of the pandemic, which forced banks to automate and modernize their processes even more aggressively.

Current Challenges with API integration

While many banking institutions recognize the benefits of APIs, integrating them into the banking system is not without its challenges. This is especially so when you have multiple teams across geographies using a variety of API tools and vendors. This leads to duplication of efforts, further complicates the system and therefore leads to a loss in productivity. Using the right API platform can take care of these issues while giving the additional benefit of security and governance.

Integrate APIs in your banking system with Blanc Labs

APIs offer an exciting future for banks. It is imperative that banks take advantage of new technological products and services and leverage open banking, so they are not left behind in the race with FinTechs and other competitor banks.

Blanc Labs offers APIs that unify all ledgers and functions so that banks can get a true 360-degree view of their customers and help banks upgrade systems to meet regulatory standards.

Book a demo or discovery session with Blanc Labs to learn about the impact of our API solutions for banking.

Articles

Why Banks Need Intelligent Document Processing

By Charles Payne and Donald Geerts

In the last two years, we have witnessed a consumer engagement revolution. The pandemic has seen a rush toward digital channels in all facets of life, including the banking industry. The need for instant gratification and round-the-clock support means that lenders must process customer or broker requests faster while balancing security, compliance, and risk management. Data released by the Canada Mortgage and Housing Corporation (CMHC) suggests that in the first half of 2021, the mortgage industry in Canada saw its fastest growth in the last 10 years. Given the rising demand of the market, the “need for speed” in the loan origination and decisioning process is at the top of the list.

Staying ahead of the competition requires a digital transformation that often begins with intelligent document processing as the first step. Financial institutions must partner with the right intelligent document processing (IDP) solution provider that will deliver both speed and accuracy to meet consumer expectations.

Tedious and time-consuming processes

The process of mortgage approval or renewal involves many, many documents. Before a mortgage is even approved, a mobile mortgage lender must collect and organize documents (sometimes handwritten), send them to various personnel in the financial organization to be vetted, and finally return to the customer with a yes or no—a process that can take up days or weeks. If a bank takes too long to respond to a borrower, they may turn to offers from other lenders. Such a situation is easily avoided with the help of intelligent document processing. Once a document is received, the right IDP program can classify it, extract data from the document, and store the data in a way that is accessible around the clock, not just to employees of the lender but to RPA (robotic process automation) processes as well. If additional documents are required, the RPA process can notify the mortgage agent or borrower. If the application is complete, then the RPA can send the data ahead for auto-decisioning. Using IDP in combination with RPA can ensure a quick turnaround on an application without consuming too much time.

Organizations with no digital document processing reported 10x more at-risk customers and 2x more at-risk revenue compared to other companies. (Forrester, 2020)

Inability to scale

One way to address the growing demand for mortgages is to hire, train and retain more employees. However, increasing the size of the team may result in a higher time to value (as new employees will take time to ramp up to desired levels of efficiency) and increased costs too. Lenders can benefit from IDP solutions that may be scaled up quickly with a marginal infrastructure cost.

Just digitization isn’t enough

Many lenders today receive applications through mortgage portals. While the first step of digitization of documents is taken care of, banks do not follow through to ensure the proper classification, extraction, and storage of these documents. As a result, an employee must still go through the documents to verify and authenticate their contents to ensure they are adequate for an application. It is no surprise that knowledge workers lose 50% of their time preparing documents and therefore, experience a 21% loss in productivity because of document issues.

Security and risks

Worldwide, the digital fraud attempt rate grew by 52.2% in 2021 compared to two years earlier. Banks or financial institutions that do not have intelligent document processing capabilities may be caught off guard or may not be able to respond in time to stop transactions. IDP, on the other hand, can reduce the incidence of fraudulent transactions by assessing large volumes of historical data accurately and in real-time. By identifying the patterns, an automated system can immediately flag a suspicious transaction and stop it if necessary.

KYC is another area where IDP software can help by minimizing human error. The IDP program can read submitted documents, verify the identity and details of the customer by searching through data repositories and even assign them a risk score, thereby helping the lenders meet regulatory standards.

Unaligned with consumer demands

Unsatisfactory products and fees, slow response to problem resolution, and a lack of convenience are some of the top reasons why financial institutions are are losing out to FinTechs and digital-only banks. One of the biggest contributions IDP can make is to automate repetitive manual tasks and free up lenders employees’ time in activities that will increase customer satisfaction—building trust & rapport and enhancing product offerings.

Automate document processing with Blanc Labs

There are many reasons why banks need intelligent document processing, and Blanc Labs provides a 360-degree IDP solution that can:

Automate workflows for document collection, digitization and analysis
Replace manual effort through intelligent data capture
Connect with third party data providers for analysis and insights
Analyze document data, provide status alerts, and flag fraudulent entries
Secure documents in a drop box
Deploy on premises, in the cloud or as a hybrid model

Book a demo or discovery session with Blanc Labs to learn about the impact of our IDP solutions for banking.