Can APIs Save Traditional Banks?

Banks were once the great riverbed of financial activity. Today, the flow of cash is gradually being diverted through other, third-party channels because of services that are unavailable from banks. It’s not totally the banks’ fault — their hands are often tied by regulations and processes — but the reality remains that, if they don’t adapt, the commercial banking establishment will slowly evaporate.

David Koch, the new chief commercial officer at FI.SPAN, has been on both sides of the issue. In a discussion with Karen Webster, Koch unpacks how his past prepared him to combat this problem in his current position and how banks are going to have to change in the future if they want to stay afloat.

Koch previously worked at one of the leading financial services company that enables cross-border commerce and fixed foreign exchange rates via an application protocol interface (API) that allowed banks to add that set of capabilities to their portfolio and offer them at a competitive rate.

However, Koch learned that a good API isn’t worth much if it doesn’t get integrated, and that, unfortunately, was a problem he saw a lot as that company made their deals with various large banks.

Meanwhile, Koch also spent time with a global information technology systems integrator, where he encountered the opposite problem: Banks wanted the software to integrate with APIs, and when they found out their legacy software wouldn’t integrate easily with APIs, many lost interest.

Koch told Webster that at FI.SPAN, he feels he’s finally in a place to alleviate some of the pressures that he tried to address in both of those situations.

“I found it very surreal: A lot of my previous experiences had prepared me for exactly the opportunity that FI.SPAN is going after,” the new CCO said. “FI.SPAN is the grease in reducing the friction of APIs. On the back end, FI.SPAN is helping take whatever generation of technology exists on the current systems and translates that into an API going outbound.”

Koch said there are many benefits to banks unbundling their services and introducing third-party APIs, a practice known as “open banking.”

First, there’s the sheer freedom of simply having options, rather than choosing a single solution. Banks can fully customize their service and implement new features quickly and easily because their services, along with third-party solutions, can be easily added through the use of API connectivity.

“It really is fairly liberating — especially for the mid-size regional banks — to be able to reach in and get these products and deliver them to their customers,” Koch said.

By the same token, having options creates insurance, because banks can have a Plan B in place.

For example, if a bank has service through Western Union and Western Union goes down, what happens? If that’s the only plan in place, then customers don’t get service. If there’s a backup provider, then the organization can continue to serve its customers during the outage.

“We would never recommend you have just one provider,” Koch said. “It doesn’t cost anything to have multiple providers, and that mitigates the business risks.”

Webster noted, “It takes a lot of resources to keep banks running, so you’re probably helping them leverage their innovation dollars in a way they otherwise couldn’t.”

Security is another benefit of APIs. As long as they’re riding on a credible provider like AWS, a high level of security is inherent in the platform.

APIs also have the potential to boost cross-border commerce because there are APIs out there that can enable banks to handle multiple payment options without having to do the work of integration.

The only real downside Koch has seen is the learning curve: People sometimes get frustrated when they find out the API route is not without its own speed bumps.

When Koch makes his case, it’s usually before chief architects. That’s because APIs don’t offer a point solution; they offer a “strategic architecture solution.” In other words, the company must identify its own infrastructure needs before working with FI.SPAN to get there.

The solution does, indeed, need to be architected, according to Koch. Implementing one-off API solutions won’t be scalable in the long run. He understands why banks would have wanted to take this approach; it was a good way of getting ahead early in the API game. However, organizations are now going to realize that they don’t just need a knee patch; they need a whole new pair of pants. Koch said that scalability and quick connectivity is part of what FI.SPAN offers its customers.

“This isn’t just a revenue play,” Koch said. “This is a strategic play to keep banks at the forefront of the services that its customer needs. When flows aren’t going through the bank, they lose insight into what’s going on with that customer.”