By John HintzeApplication programming interfaces are all the rage, dynamically connecting banks to their customers and providing regional and community banks with many of the same products and services offered by global banks with massive technology budgets. The technology opens the potential for partnering with other institutions to draw new sources of customers while customizing a bank’s existing and new services to an extent that simply has not been possible until now.
“APIs really allow medium-size banks to compete with the technology spends of the big banks at a fraction of the cost,” says the treasurer of a midsize bank in the Northeast.
One frontrunner with APIs among smaller banks has been Phoenixville, Pennsylvania-headquartered Customers Bank. It established its BankMobile Technologies division in 2015 that initially focused on mobile banking and quickly grew into a major digital-banking platform before Customers divested it in January 2021.
The development of BMT prompted the bank to rethink the customer experience and interface with the institution, says Sam Sidhu, vice chairman and COO of the $18 billion-asset financial institution. In 2018, management foresaw APIs becoming an integral part of banking, by enabling more efficient exchange of data between different systems, both within the bank and with third parties, and easier use of cutting-edge and customized applications.
Leveraging the institutional knowledge from BMT, the bank began wrapping its core technology with an API middleware to which other APIs could connect to exchange data, rather connecting each application individually to the bank’s core databases. It first applied the technology to improve basic bank services, such as opening deposit accounts and ordering credit and debit cards.
When the pandemic arrived in spring 2020, that knowledge enabled it to be one of the limited number of banks—the others mostly large nationwide banks—with the technical know-how to connect via APIs to the Small Business Administration, so business clients could take advantage of the Paycheck Protection Program.
It then white-labeled the process to enable numerous other banks as well as institutions reaching minority groups, including small-business associations, local chambers of commerce and fintech firms, to originate loans that were ultimately underwritten by Customers and funded by the SBA. The APIs that Customers developed automated the process and the transfer of data between the various parties, enabling Customers to ramp up significantly the volume of PPP loans it provided to businesses desperate for funds.
“Once you build out these APIs, they’re reusable so you can just open them up to other companies that want to use the services,” says Jennifer Frost, chief administrative officer at Customers. “They give you the ability to enter different markets or partner with different companies, providing a funnel for new customers.”
The concept of APIs—connecting applications and databases within an organization—is far from new, notes David McIninch, SVP of strategy, marketing and product management at Fiserv. Starting a decade or so ago, he said, technologists asked for direct access to the APIs and the data flow they enable, to customize their own software. The trend coincided with a shift to the cloud and a desire among management to maximize the use of IT departments.
“CIOs looked at their IT teams and decided that giving them direct access to the APIs that run the software they work with every day would improve their banks’ ability to control their destinies, McIninch says.
Fiserv built an API middleware that translates data from Fiserv or third-party applications, routes it to banks’ core systems run by Fiserv, and then brings back the data to the applications through API “calls.” Five years ago it launched a commercial version of that API layer. Some clients may want an out-of-the-box solution from Fiserv. And those that want their chosen fintech partner to build a more customized product to distinguish themselves from competitors, with or without the aid of Fiserv experts, can do so on top of the API middleware, which provides ready access their core data.
“We will continue to implement innovative solutions to best serve our clients, and Fiserv and its commitment to open banking will power those integrations,” said Fabian Rojas, CIO at New Jersey-based Valley Bank, in a recent announcement about signing on with the technology provider.
He added that Fiserv’s system will allow the bank to run physical bank locations in concert with digital offerings, “delivering a hybrid banking experience that allows us to deepen relationships with existing customers and to attract new customers as well.”
Fiserv is now in the process of launching what essentially will be an app marketplace, similar to Apple’s App Store. It will offer its own applications and anticipates attracting software solutions developed by bank customers and fintech firms, enabling banks to explore solutions that can help address the different issues they face.
“Our goal is to bring this to the market at scale, so our clients can leverage all the data and APIs that we have to build really unique experiences for themselves,” McIninch says.
Frost notes that the API middleware permits a bank not only to open its banking services to other banks and new sources of customers, but it also vastly improves internal efficiency. APIs’ end-to-end digitization enables automating processes and eliminating the use tools such as emails and data files, which can be time consuming and require quality assurance to avoid errors.
“With APIs, you’re just letting systems talk to each other,” Frost says, adding that the API middleware also permits quick implementation of out-of-the box banking-related APIs from companies such as Salesforce and Snowflake.
In fact, such APIs may soon be available over Fiserv’s app store, and the evolution of API technology can provide highly specific solutions. APIs have expanded beyond the call-and-respond interaction between a bank’s applications and its core systems, and now can run continuously in the background in real-time, making possible what McIninch calls event-driven microservices.
For example, if a consumer’s payroll deposit disappears from her account, an event-driven microservice could alert the bank that the customer may be changing banks, and a pre-packaged loyalty program could be sent to her immediately.
“So all of a sudden this whole workflow gets kicked off and not a single person has to touch that,” McIninch says.
On the lending front, he added, APIs could enable a bank to automate monitoring a business client’s cloud-based financial functions, such as accounts payable and receivable, and based on past behavior determine a working-capital loan likely to be required to cover payroll. The bank could then offer an attractive advance rate on the loan, if the client signs on to it early.
“Otherwise regional and community banks have to hire people to do that,” McIninch says, adding that the advent of APIs is revolutionizing banking services and leveling the field between the largest banks with vast resources and all the others. “What’s happening now with fintech and APIs is probably the most exciting thing I’ve seen in my career.”
John Hintze is a frequent contributor to ABA Banking Journal.