Barriers to Innovation: Two Basics Banks Can’t Ignore

Barriers to innovation are breaking down, and rapid developments within fintech have raised consumer expectations of the financial services industry as a whole. Customers who engage with digital banking channels almost on a daily basis now demand dynamic and personalized experiences that predict their needs and solve their problems in real-time. Therefore, if your service doesn’t offer a seamless user experience, customers can go elsewhere and find a competitor that can better serve their needs. Utilizing APIs and integrating IT systems seamlessly within your banking institution brings a vast array of benefits and can help you in overcoming barriers to innovation and change. For instance, APIs can promote cross-department decision-making, which can help streamline product development costs. However, integrating new and effective API tools into your existing IT infrastructure can lead to challenges — such as managing permissions, regulatory compliance, cybersecurity issues, and more. This article will highlight two critical barriers to innovation within the banking industry — a lack of integration planning and poorly optimized APIs. We’ll also explore how banking firms can overcome integration and API pitfalls to create agile IT systems that continuously deliver exceptional customer experiences.

Barrier for Innovation #1: Integrations

One of the most pressing issues financial services companies face when embarking on digital transformation projects is integrating new technologies with their existing IT infrastructure. Traditionally, point-to-point integration allowed companies to add applications to their systems ad hoc. However, the point-to-point approach can only manage a small number of applications efficiently. Once an information ecosystem relies on collating data from, say, dozens of applications to complete tasks, creating a frictionless and integrated IT infrastructure that facilitates fast and efficient data collection from multiple sources becomes crucial. Poorly integrated IT system wastes time and resources inputting the same information across multiple systems and stalls deployments of new applications across cloud and on-premise systems. Overcoming integration challenges is critical to business transformation. Therefore, to remain competitive in the financial services industry, firms must develop integrated IT solutions that free up business leaders’ time and resources and can deliver on innovations faster than their competitors.

Overcoming the Barriers of Integrations

Fast-paced innovation requires reusable components, like APIs, to increase productivity and collaboration. Features such as templates allow developers to discover, connect, and reuse software assets. APIs also enable business leaders to break down workflows into chargeable units which can be readily shared with outsourced professionals or partnering firms. To use an illustrative example, Amazon’s ‘Pay Now’ API connects to a specialized fintech team with permissions to make updates to the application without affecting the rest of the information on the site. Integration, in this use case example, allows optimization decisions to happen quickly and efficiently —without causing disruptions to other areas of business. Furthermore, fintech firms can create APIs for monetization. For example, Experian shares its creditworthiness assessment tool with partnering financial institutions. The Experian API offers value to firms and establishes a more extensive audience reach for their services. Monetizing financial services APIs is becoming more popular, and organizations anticipate investing an average of $29 million in APIs in 2022. So, make sure you do what you can to create a more collaborative environment for internal and partnering development teams.

Barrier for Innovation #2: APIs

According to McKinsey, roughly 75% of banking APIs are used for internal purposes, and banks plan to double the number of internal APIs by 2025. APIs help firms develop integrated IT systems, but they also have some shortcomings. Common challenges with API usage include security and governance issues, compliance and regulatory reporting, and data sharing capabilities. Fintech firms, therefore, need to create robust customer authentication and consent management protocols. APIs also need to be flexible enough to adapt to scenarios like tax regulation changes and shifts in consumer demand and spending power. How to Overcome API Challenges to Product Innovation API developers should enable cross-department decision-making and oversight to create a truly successful product. Traditionally, IT departments were in control of all functions of an API and sought little input from other parts of their organization in making decisions. However, by taking a more proactive approach, API developers can pool insights from relevant business areas and create tools that offer a broader scope of functionality. Here, we will look at three case study examples where successful API deployment transformed financial service offerings and enhanced customers’ experience of online banking.

Overcoming API Complexities

Crédit Agricole and Société Générale faced evolving regulations which demanded technical flexibility and dedicated resources. However, certain legacy IT systems within their architectures were unsuited for permissions and data sharing capabilities. Both financial institutions contacted WSO2 to enable their existing systems with message format transformation capabilities to overcome API complexities. WSO2 Open Banking, which is developed incorporating WSO2 API Manager and WSO2 Identity Server, delivers complex open banking capabilities, allowing them to explore ROI with highly-performant APIs, microservices, GraphQL, dev portals, and billing integration.

Enhance Your API Developer Skills

Build your API developer team’s competency to reduce legal and compliance risks. One of the best ways to upskill your team is working with a specialized consultant in the field. WSO2 offers a technology platform and strategic consulting that banks could tap into to reduce the complexity of building cloud native, digital products and find solutions that help them quickly scale their business. Consulting with API and integration experts can also help financial services companies build API-driven CIAM (customer identity access management) solutions that enable you to build a more complete view of your customers using identity data securely and in compliance with privacy best-practices and regulations, and harness the full potential of integration technologies to maximize business performance.

Understand and Capture the Business Benefits of APIs

Finally, companies can monitor API usage to understand customer behavior and potential platform issues. Karnataka Bank, for instance, partnered with WSO2 to combine legacy customer data sources with real-time user data, thus increasing customer retention and upselling potential. WSO2 also held workshops with team members to build a culture of innovation within the bank. Awareness initiatives, combined with real-time engagement channels (with additional layers of security to manage information between systems) enabled adaptive business capabilities and increased the lifetime value of their customers.

How WSO2 Has Helped Clients in Overcoming Barriers to Innovation and Change

WSO2, the leader in digital transformation, can help banks invest in deeper collaboration via value-focused APIs. With today’s digital financial services offerings constantly evolving, financial services brands need to develop faster productization capabilities to create more personalized and streamlined digital experiences for their customers. Offering enhanced information flows in real-time gives you the edge ahead of your competitors, as you are more effectively positioned to respond to customers’ changing needs. You can successfully pivot your resources and decision-making responsibilities to relevant departments and make the most out of lucrative partnership opportunities using APIs and system integration. To learn more about WSO2’s technologies that can help you stay relevant and thrive, download the 5 Banking API Use Cases e-book.