How APIs overcome the challenges of digital transformation
Today, almost 4.54 billion people were active internet users as of January 2020, encompassing 59% of the global population as of 3 February 2020, according to Statista. That includes digital customers – especially the tech-savvy millennials – who want to interact with banks and financial services online; moreover, they want to do it with security and mobility.
To get the lion’s share of these customers and keep their existing customers, well-established financial institutions must innovate like nimble newcomers and leverage their lumbering legacy systems into lithe digital experiences. Moreover, to drive new revenue and prevent customer defection, they have to do it speedily, safely, seamlessly, and inexpensively.
The need for APIs: Why no bank can afford to be left behind
The banking and financial services landscape has been dramatically changing. Startups and newcomers built revolutionary financial products like online-only banks, fully automated financial advisory and investment sites, and peer-to-peer lending services – pushing traditional banks to wake up from their lethargy and bring their enterprises into the digital age, and fast.
With the digital revolution hitting the industry full on, competition over savvy customers is fiercer than ever. To win these customers over, banks have to fulfill their expectations: For example, enable them to use the bank’s mobile app to scan checks or increase bank product, employee efficacy, and provide faster service via web applications that present a 360-degree customer view, with all the necessary information.
Tomorrow’s outlook makes this digital demand even more urgent. According to a recent PWC ‘Global FinTech Report’, large financial institutions across the world could lose 24% of their revenues to financial companies harnessing new technologies. They need to fully utilise their existing assets through digital transformation, and rethink their business models to self-disrupt and ensure continued sustainable growth.
Thanks to venture capital money, increasing consumer appetite for cutting-edge digital experiences, inexpensive cloud infrastructure and mix-and-match APIs, startups are building revolutionary financial products and experiences.
Why transformation is so difficult and why past methods have failed
No transformation is pain-free. New digital imperatives all require legacy transformation; and the choice is between integrating data, processes, and business functionality from legacy systems of record to newer, modern technologies OR developing newer systems.
Integration is complex – involving critical business functions like account management, payments, loan management, credit cards, as well as client relationship management (CRM), finance, and accounting applications. Additionally, more and more enterprise applications are becoming cloud based – further complicating the process due to the technological differences between on-premise and cloud-centric integration approaches.
Of course, organisations have tried various transformation options in the past, only to see them fail, including:
|Option||Description||Why it failed|
|Rip and replace||Writing applications and business flows from scratch with the newest technologies to replace existing legacy hardware and software.||Costly, risky, prohibitively time-consuming|
|Re-platform or re-host||Deploying the same software on new hardware||Retains the downsides of closed, inflexible legacy applications – even though it may reduce costs by moving from expensive legacy hardware to a more manageable environment|
|Direct integration between applications||Writing custom integration code in every application that needs to be connected||Opens up previously locked applications but requires costly and unscalable custom coding|
|SOA and ESB Platforms||Deploying new middleware (custom middleware, connectors, and ESBs) to
connect disparate systems and applications
|Increases complexity, creates vendor lock-in and spiraling costs, even while achieving integration|
The future is here: Why APIs and microservices are the best way forward
What do financial institutions need to succeed? Three things:
- Customer-centricity – a seamless, personalised customer experience via integration of an intuitive user interface containing data and processes from multiple, disparate systems and applications across the organisation.
- Mobile centricity – anytime, anywhere access by consumers and employees to the information and services they require across devices, locations, and applications.
- Agility – The ability to quickly deploy new business functionality and user interfaces and quickly introduce new consumer products like service bundles, payment apps, and digital banking.
Application programming interfaces (API) and microservices can make this “evolution rather than revolution” happen. Simply put, APIs are a software intermediary that allows two applications to talk to each other. Microservices is a way of developing software systems that focuses on building single-function modules with well-defined interfaces and operations.
By bringing APIs and microservices together, financial institutions can:
- Extend the tried and true environment using standard, open API technology
- Create fully functional digital services within days instead of months
- Get speed of implementation, low cost and open standards in one API integration and management software platform
- Connect enterprises’ core applications to mobile, web and cloud solutions
- Provide end-users with an improved experience via access to systems through web or mobile devices–or their device of choice–within days or weeks
- Give customers an improved experience in addition to information and new services they did not have available previously
- Create microservices as an API that has the application, rules and security built-in or, in one step, create a legacy API and deliver business processes as microservices.
Bridging the legacy gap
To enable the flexibility banking enterprises need to meet today’s digital imperative, they need to transform existing systems as services and then integrate those services as needed. The API and microservices approach lets them customise their strategy – providing options such as which business processes and data elements to expose and which functions to keep internal. Features and functions from legacy applications can be easily pulled out and combined into processes that authorised users and other applications can access from anywhere.
It’s imperative that established financial services organisations do what it takes to stay in business. With the agility of microservices and APIs, it becomes that much more easy.
By Zeev Avidan, chief product officer, OpenLegacy