APIs are innately intended to allow for interconnectedness between different apps and software resources.
However, the rise of open APIs is taking this to the next level, bridging the gap between not just separate solutions, but between entire industries.
This is particularly apparent in the payments sector, with the transformational impact of open APIs conjuring up a vibrant economy of distinct yet interoperable app ecosystems.
Let’s take a closer look at the exciting changes instigated by open APIs and what this means for the world of finance in particular.
Out with the Old, In with the New
The key reason that open API strategies are being adopted almost universally is that incumbent banking brands have woken up to the threat posed to their business model by digital payment upstarts.
Rather than relying on a buttoned-down, proprietary approach to payment systems, banks have had no choice but to open up their apps and services to the ever-growing number of third-party platforms and solutions in order to keep pace.
While the open approach requires a rigorous API governance process, the upsides are significant enough to justify the added effort needed to implement any changes.
Attractive use Cases Galore
For banks and other types of payment providers, open APIs afford all sorts of potential uses, letting them tap into a deluge of data from a range of third-party sources.
For example, customer acquisition and retention can be bolstered by targeting prospects more effectively and personalizing the kinds of products that are available to them.
Likewise, open APIs allow for the integration of IoT (Internet of Things) devices, which can help with payment processing at remote PoS terminals, amongst other things.
Banks can also streamline the creation of partnerships with other brands, perhaps offering specific perks and loyalty rewards to customers who spend money on a particular e-commerce site, for instance.
Furthermore, open APIs allow for finance firms to share data with other organizations and use this to extrapolate insights, unpick market trends and generally improve services across the board in a mutually beneficial way.
It is all about drilling down into what makes customers tick, what relationships they have with other businesses and industries, and how this can impact the payment services they use.
Consumer benefits
So far it might sound like the main beneficiaries of open APIs are the banks and payment providers themselves. While this is certainly part of the equation, it should also be contextualized from a consumer perspective.
Take the way that modern banking apps can track spending habits and identify not just individual transactions, but also group together spending trends for users. Month by month this makes budgeting simpler, as you can see how much you are spending on food, transport, entertainment and so forth.
The vast majority of consumers might not know that APIs are working away behind the scenes to facilitate such functionality, but they definitely feel the effects of the benefits they bring to the table.
Future prospects
In the long term, it is difficult to understate how significant a role open API strategies will play in altering the payments landscape more than they have already.
Openness and interoperability, as well as cross-industry communication and collaboration, form the core of this trend, and will further empower banks, payment providers, and their customers as new breakthroughs are made.
While there are the aforementioned considerations when it comes to governance, as well as security implications of this brave new world, the positives outweigh the uncertainties and there should be winners on all sides.
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