More Banks Working on APIs in 2016, But Bureaucracy Remains a Problem

APIs (application programming interfaces) are fast becoming integral to the banking world, but corporate culture has not yet caught up with the technology, according to data from a survey conducted by the Open Bank Project together with Bank Innovation.

In 2015, 62% of survey respondents indicated corporate culture and bureaucracy were the most significant hindrance to the development of an open API project. In 2016, despite an increase in the percentage of banks launching API initiatives, that number climbed to 69%.

It hasn’t stopped Visa and Mastercard from both recently opening their API development platforms to third-party developers. Many fintech startups are looking to plug into the data only banks have. But as you may have heard, startups tend to be faster at innovating than traditional banks—which is becoming a bit of problem when it comes to APIs.

According to data from the survey, 87% of the survey’s 174 respondents consider their banks’ inability to quickly create new digital products as a major challenge to API infrastructure. And 85% of those surveyed consider compliance a “very important” or “extremely important” challenge.

Compliance and regulatory benefits were ranked fourth as reasons to adopt an API program, according to the survey, behind such other factors as improved customer service, rapid prototyping, and new revenue streams, when last year compliance and other regulatory benefits were ranked dead last by survey respondents.

Only around a quarter of bankers (24%) saw compliance as a barrier towards implementing an API initiative, as opposed to 31% of bankers who were surveyed last year.

Additionally, bankers highlighted improved customer service not only as a benefit attached to an API strategy, but as something that is a reason in itself to launch an API–in other words, bankers ranked delivering innovative apps and other products as the top reason APIs are important as well as regarding it as the top benefit.

The concerns regarding the cost of innovation were obviously high among bankers, while only one-third of those surveyed cited things like vendor lock-in or communication across geographic barriers as an important cost challenge for the adoption of an API initiative.

This ties into the “adapt or adopt” question posed in the survey, which notes that the software of traditional banks makes it difficult to implement an API strategy without compromising the existing work of the bank, as stated by Matt McLarty, vice president of the API Academy at CA Technologies:

Generally, I would say you may need to adapt first before you can adopt, says McLarty. If you define your services and capabilities in API terms, you create a bridge between the business and technical teams. In a complex software system, APIs provide a layer of abstraction that gives the system a business context and illustrates how its components interact.

Data also shows a surge in the number of banks that have launched an open API initiative — 30% of respondents compared with last year’s 24%. Banks planning to launch an initiative in the next 12 months led all categories, with about 39% of all respondents. Only 9% of banks said they were not considering an API initiative. 13% said “Maybe.” and citd the need to build  business case, overcome cultural constraints, and ensure resource allocation.

To learn more about APIs in banking, join us in Tel Aviv for Bank Innovation Israel this November 1-3. Register here.