Articles

5 Factors to Evaluate Open Banking Readiness in Canada

By Steven Cheung and Rishi Khanna

open banking readiness

Open banking’s first phase is almost upon us. Now more than ever, banks will need to address their digital and core systems if they wish to participate and gain from the new banking regime. The need for seamless digital experiences, especially post Covid, is shaping customers’ expectations from banks and financial institutions too. Roughly $416 billion is up for grabs and if the prediction holds true that open banking adoption will increase by 76% in the next three years, then incumbents should begin preparing themselves without delay.  

What is Open Banking? 

Open banking is a way for financial services customers to securely share their financial data with other financial institutions and third-party providers using APIs governed and regulated by universally accepted protocols. Open banking exists in several countries around the world including the UK, Australia, Brazil, and Singapore.  

The Benefits of Open Banking 

Open banking is pushing banks to innovate and play nice with Fintechs. In the UK, where open banking launched shortly before COVD-19, the use of Fintech applications for money management rose by 20% for adults and 50% for young adults. Banks, as trusted custodians of customers’ data, can take advantage of the new Fintech technologies that have sprung up as a result of open banking to deepen customer relationships and retain them by providing valuable insights on their personal or commercial finances instead of just facilitating transactions.  

5 Factors to Assess Open Banking Readiness in Canada 

The first phase of open banking in Canada will begin in January 2023. Many banks and credit unions are in the midst of preparing themselves for open banking. But just how ready are they? 

 Here are 5 Factors recommended by Blanc Labs to evaluate if you are ready for open banking: 

Factor 1: Your core and digital banking systems are up to date 

Your financial institution’s core and digital banking systems are scalable, compatible with other new technologies. You have web-banking and mobile banking platforms for retail and commercial customers. Most processes are automated, minimizing manual intervention. The core banking and digital channel systems are cloud-native 

Factor 2: You have identified business use cases for open banking 

You have identified use cases for open banking at your institution and you would now like to invest in an API-led ecosystem to monetize your data. Open banking use cases could include Account Aggregation, BNPL (Buy Now Pay Later), and Tax preparation.  

Factor 3: Your organization is united in reaching its transformation goals 

You have a non-traditional approach to growth and view open banking as a strategic imperative towards creating new lines of revenue for your business. As such, you have budgets dedicated to open banking efforts. You are looking at ways to improve how to use your data through TPPs (third-party providers) to create relationships with other financial institutions and non-banking entities and turn them into new offerings for your customers.  

Factor 4: Your API-ecosystem is mature 

Your organization has been creating APIs for internal and external consumption for some years. There is a standardization and documentation around maintenance, governance, security, and management of APIs. There is visibility over the entire API catalogue and tooling to track and monitor API performance. You participate in agile data partnerships with Fintechs, which means your onboarding processes are thorough, but quick.  

Factor 5: You can operationalize APIs and use them as products 

That leads us to the final step. Your organization can support third-party use, both in terms of system bandwidth as well as security. Your systems can take high traffic load. You are primed to use API-as-a-Product.  

Do you have an Open Banking strategy? 

Still unsure? Apart from readying the underlying enabling technology considerations, Open Banking is fundamentally a business decision and a discussion about how to best compete and win in the new banking environment.  Here is a handy Digital Maturity Assessment from Axway that can help you figure out what stage you are at and what to do next. Blanc Labs in partnership with Axway offers an Open Banking Strategy Workshop that can help you: 

  1. Define your financial institution’s goals for growth 
  2. Analyze the current state of your organization and what you need to meet your long-term goals 
  3. Identify challenges that you need to beat to ensure you can take full advantage of open banking 
  4. Zone in on use cases that will give you the biggest ROIs and the fastest time to value 

Book an Open Banking Strategy Workshop with Blanc Labs to learn more.

Articles

Open Banking API Challenges: 4 Areas That Need Intervention

By Steven Chung and Bob Paajanen

woman solving api integration challenges

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:   

  1. Increased productivity, as developers are easily able to find and repurpose APIs instead of duplicating efforts or wasting time searching for them.   
  2. Less technical complexity by unifying and simplifying API services across the organization  
  3. Better security through a unified view of all APIs  
  4. Faster upgrades of legacy systems through an API-first layer allowing you to add new services more easily  
  5. 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:

  1. Technological Complexity
  2. High Costs
  3. Security Risks
  4. Time Consumption
  5. 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:

  1. Increased productivity, as developers are easily able to find and repurpose APIs instead of duplicating efforts or wasting time searching for them.
  2. Less technical complexity by unifying and simplifying API services across the organization
  3. Better security through a unified view of all APIs
  4. Faster upgrades of legacy systems through an API-first layer allowing you to add new services more easily
  5. 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

4 Ways APIs Can Improve Your Bank

by Bob Paajanen and Steven Chung

Man using banking APIs for transactions

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.” 

Source: Business Insider

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:

  1. Integration
  2. Connectivity
  3. Platform Banking
  4. 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.  

Interested in hearing how we can accelerate your digital transformation?