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Open Banking - How APIs are fast-tracking growth

As Fintech companies find greater success and wider consumer adoption, it’s clear that one of their biggest advantages is their use of APIs helping them accelerate speed-to-market and speed-to-scale.

Consumers have shown an appreciation for the agility this gives Fintechs, especially during COVID-19 as the pandemic has given way to a sharp 72% rise in adoption.

That’s all in stark contrast to most traditional banks still using legacy infrastructure and, as a consequence, lagging behind in many of the areas where Fintech companies are experiencing growth and success.

This blog post explains why, particularly when it comes to reaching market faster and scaling with both speed and stability, APIs have been a crucial component of many Fintechs. And also, how this key open banking ingredient is available for traditional banks to adopt and see the same, if not bigger, benefits.

Fintech and Open Banking - why the appeal?

The shake-up caused by COVID-19 has been a tough one to adapt to for consumers and, by extension, the financial institutions they rely upon for services and advice. Many B2B companies are already shifting to a cloud-based approach for managing business. That comes with an additional need for on-demand access to data, preferably a comprehensive set of it. The speed provided by APIs is essential here.

With data, systems and processes all operating on on-site servers and legacy technologies, big banking hasn’t been quite as quick to keep up with fast-changing consumer needs. Under so much unexpected growth, the traditional systems of big banking struggle to keep up leaving a massive backlog to work through. Plus upset customers.

Meanwhile, Fintech companies relying on APIs weren’t phased and showed no signs of crumbling.

The pandemic provided the clearest case study so far that the API-led infrastructure of Fintech doesn’t just scale, but it does so swiftly — and at short notice.

The speed-to-market benefits of APIs

Fintechs — not seen as equals to big banking institutions by much of the UK market — had to provide more value to convince consumers to switch to them. The pandemic created an opportunity for that.

An essential detail to bear in mind here is that the UK government, as it details in its UK Fintech: State of the Nation paper, has long strived to create a conducive environment for Fintech success. And that’s not merely limited to new and emerging firms, but also big banking institutions looking to modernise.

Many Fintech companies, leveraging APIs, have rolled out features to help ease consumer uncertainty and at the same time increase their market share. These have included lending facilities, smoother migration, detailed spending insights, tailored financial news access, and more.

And making it to market quickly has been essential.

Of course, security is an essential consideration in cases such as this. And speed-to-market counts for little if features need to be rolled back after security breaches.

Big banking would likely deal with this through rigorous development of security measures. Whereas, with the absence of a standardised security framework for APIs in open banking, more aggressive Fintechs may sacrifice fully applying the security features provided by enterprise-grade API platforms and APIs, for speed-to-market.

Yet another issue all financial services firms need to deal with, especially when rolling out new services, is targeting. And it’s one more case where legacy infrastructure is slower than APIs, which allow for much more data to be retrieved, computed and correlated to provide new insights in a significantly shorter time.

The Speed-to-Scale Benefits

Legacy infrastructure is more expensive to maintain than APIs, by a magnitude of 10% to 15% per year on average, but the expense dials up when it comes to scaling new features.

And that’s compounded by the fact that many more emergency measures need to be taken, since legacy infrastructure is at a far higher risk of buckling under the weight of fast-increasing data processing than APIs.

The traditional way for big banking to deal with this problem has been to manually place a ceiling on the rate of scaling, so the infrastructure can first become robust enough to support further growth.

That’s inefficient, and APIs don’t require such controls.

The manual input needed with legacy infrastructure is also unnecessary with APIs. And that means bandwidth can be allocated to high-priority tasks that have greater implications for scaling potential.

AI solutions can also automate non-essential communication with consumers. Besides availing more human resources for scaling performance, this helps consumers onboard faster.

TicToc Loans

A Fintech company that provides a clear case for the speed-to-market and speed-to-scale advantages of APIs is TicToc loans. The company’s focus is on paring down inefficiencies in home loan application and approval, so customers can move beyond paper-based applications. And also so they can receive near-instant responses to their applications.

Taking a product such as this to market, and giving it the structural integrity to withstand rapid growth is only achievable with APIs.

Below is a detailed look at how the TicToc loans used MuleSoft Anypoint Platform and APIs to make an impactful market entry and fuel its growth:

Challenge: Integrating data to improve the home loan process

For TicToc, delivering with a seamless, instant, home loan application experience required:

  • Integrating core system data from e-form applications, valuation and verification services, the credit bureau, scorecards, and more
  • Offering real-time document generation and home loan decisions
  • Delivering their new product to market quickly to gain a competitive advantage

: To automate the home loan process, TicToc used APIs to unlock data from an e-form application as well as 21 other systems.

Using APIs, TicToc drastically reduced the amount of information that customers have to provide and automated previously manual tasks, such as validating the customer’s identification and financial background as well as the property valuation.

With TicToc, customers can simply enter the property address, then the TicToc technology integrates that data on the back-end with a property database to instantly calculate the property value via their automated valuation model. The same automation approach was mirrored for other stages of the application process.

Delivering an instant, real-time loan decision.

Result: Reducing the loan application process from 22 days to 22 minutes.

As a result of this approach, the company was able to launch an innovative home loan experience, where customers can receive full home loan approval in as little as 22 minutes, compared to the 22-day industry average. Since its launch, TicToc has received home loan applications valued at more than $2.15 billion

Final Thoughts

At this point, speed-to-market and speed-to-scale have become among the most fundamental aspects of the current financial climate. With legacy infrastructure, the two are hampered and costly to achieve, with far more risk involved. APIs, as they have done for Fintech companies, can make those business fundamentals smoother, and give big banking much greater agility and processes optimisation.

Other useful links:

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