The banking industry is reluctant to overhaul its internal technology. Many use legacy technology systems which was developed in the 70s and 80s, when banks were major tech innovators. This is no longer the case, but many banks are tied to the technology. Many banks fear the repercussions that would be caused by overhauling their legacy systems for newer technology. Instead, many take a middle approach, using APIs to connect their old technology with new targeted technologies, like bank identity verification.
The Technology Challenge Banks Face
Banks face an uphill battle when it comes to technology. They are facing competition from new challenger banks which are more agile and open to deploying new technology. These fintech banks have the ability to fully disrupt the current banking industry. Nevertheless, these banks must create robust security frameworks within their systems, or risk losing consumer trust as quickly as they gained it. It only takes one data breach to completely ruin a bank’s reputation, especially one without a proven track record.
Both fintech and traditional banks must ensure that the technologies they employ maintain high security, control and compliance. They must also be flexible, adaptable, open and scalable as new technology develops.
Traditional Banks Change with Caution
Many banking industry critics have called for legacy banking technologies to be phased out. They state that operational costs for upkeep are too high to support the use of outdated technology. Still, instead of following this advice, many banks have shifted their focus from replacing their outdated mainframe banking technology to creating further advancements within the current framework.
This means banks are maintaining their well-trusted backend systems and supplementing them with front-end technologies that provide more agility to their systems. This allows banks to update their technology on a case by case basis, rather than overhauling the whole system. Banks are increasingly using Software as a Service (SaaS) tools within their legacy frameworks as a result.
SaaS technologies allow new tools to quickly integrate with legacy systems through an API. They also avoid banks losing key legacy code and processes. Traditional banks are using APIs as the preferred solution to update their technology without overhauling the whole system.
A Variety of APIs for Banks
There are a variety of APIs available to banks these days. Industry reports state that there are over 456 available APIs for the banking industry. With the recent growth of fintech companies, this number is expected to continue rising. Here are some of the APIs that are sure to improve current banking systems.
Bank Identity Verification
Onboarding is a point of contention for many banks. The problem they face is properly onboarding users in a way that ensures they meet global KYC and AML regulations, but also meeting the needs and expectations of their customers. Customers expect easy and quick onboarding processes, unlike the slow, cumbersome processes that are prevalent throughout the banking industry. Many customers, especially millennials, also expect to fully onboard online as well, which is not common throughout the industry.
By connecting bank identity verification solutions through an API, like the digital identity validation services from IDMERIT, this process can be updated in a way that meets compliance and meets consumer expectations. Digital identity validation solutions will improve a bank’s onboarding process, lower the costs associated with it and reduce abandonment rates overall.
Banks can create personalized service offerings to their customers through API integrations. AI technology can be used to analyze a user’s preferences and offer them solutions that directly meet their needs. This means banks can use AI to create appropriate, targeted user journeys on a highly personalized level. This will increase customer satisfaction, user retention, increase revenue and create a more well-rounded banking experience.
Customer service can also be improved through the integration of voice or chat APIs. This allows customers to have more options for interacting with a banking institution. Open banking is becoming more of a reality with each passing day—PSD2 recently came into effect in the EU—and regulators expect APIs to play a transformative role in the forever-changing banking landscape. Consumers are becoming more concerned with the use of their data, and regulators are giving them more control over it as well. For the banking industry, APIs will play a key role in connecting customers with their data and remaining relevant in the eyes of customers.
Traditional banks are in a precarious position. They must work to maintain their reputations yet meet the demands of global customers. Customers expect banks to remain compliant with global regulations while also innovating and incorporating new technologies and processes into their systems. Many banks fear overhauling their current legacy framework technology that was developed in the 70s and 80s. Instead, they are incorporating API technologies, like bank identity verification, on a case by case basis to keep up with the changing demands in their industry.