Sachin Gaikwad, Founder & CEO, Buildd.in

A serial Fintech entrepreneur with two successful startup exits & ex VP HSBC bank, having held leadership roles in Retail banking & Lending. The adept leader is somebody who stays positive, works hard, and believes in making the impossible happen. 

 

“Change is the only constant,” this age-old adage holds true in most, if not all, of life’s situations, and the banking and finance industry is no different. Technological infestation that started off in the industry as the inclusion of small features such as NEFT, RTGS, and IMPS has transformed into API-enabled software and cloud computing over time. This paradigm transition is all set to transform the banking industry’s present and future landscape.

The advent of the Covid pandemic has only accelerated the need and pace for the use of technology in all sectors of the world, including banking. As the world and all of its processes were halted to accommodate the needs of the pandemic, a shift to digital means became more of a necessity than an innovative venture. The fact that technology carries a host of benefits is just a cherry on the top in this scenario. A broad view of how the API-enabled technologies are revolutionizing the banking sector of India is presented below.

API: Concept, relevance, and working 

API or Application Programming Interface refers to the technical interface between software programs. The key aim of API is to serve as a means to connect third-party applications. In other words, API banking includes a series of protocols that facilitate the availability of a bank’s services to third-party companies operating in the financial sector via APIs. This enables the banks as well as the aforementioned companies to extend their services and offerings to a wider set of audiences, something that they wouldn’t be able to provide if they were to operate on their own.

API has served as a boon to the banking and finance industry as it comes packed with several benefits that the industry is now thriving on. By providing greater flexibility in the provision of services, increased ease of fund management, and reduced costs, API-enabled software has made banking processes inherently more economic and efficient. Further, any inclusion of technology in working processes naturally comes with the benefits of enhanced speed and better precision, two qualities that are of utmost importance, especially in the field of finance.

BaaS or Banking as a Service

Banking as a Service (or BaaS) refers to a model which includes the integration of the digital banking services of licensed banks directly into the offerings of third-party non-bank businesses. This enables a non-bank business to offer its customers virtual banking services like mobile bank accounts, debit cards, loans, and payment services without having to obtain their own banking license.

An API based BaaS platform seeks to remove any barriers for businesses that want to offer their own financial solutions. Licensed banks can integrate their digital banking services directly into the products of other non-bank businesses by leveraging the power of such a platform. The bank’s system communicates via APIs with that of the businesses, enabling their customer to access banking services directly through their website or app.

 

The role played by API banking is revolutionizing the banking sector

Up until today, all the data of customers was stored in the core banking system in a centralized manner. The introduction of API has enabled the decentralization of the control of data and has made it possible to bring all products on one common platform at competitive prices. API banking is revolutionizing the banking environment by granting users insights into their financial transactions and thus giving customers an increased amount of power and the option to switch service providers. Even from a business point of view, the virtual maintenance of accounting information can help minimize redundancy and enhance ease.

API-based banking carries benefits for the banks too. In the absence of API banking, banks will have to provide these services by themselves which would add to their costs and work. The cost of innovation, development, and maintenance is strikingly high when it comes to technology and can thus prove to be problematic for banking units to undertake on a regular basis. Moreover, if banks were to provide these services on their own, they would have to invest in hardware to prevent the clogging of servers. Thanks to APIs, banks are freed of all these duties without any compromise on customer service and satisfaction.

Additionally, the infusion of API-based technology into banking also makes the entire process substantially economic and amplifies the ease of scaling the customer base.

Lastly, the transition to integrated data will also aid the overall transparency. Any discrepancy in the available data will be recognized quickly, and thus the probability of a timely solution will also increase. This integration will raise the precision and efficiency of the entire financial industry.

Summing Up

The advent of the pandemic combined with robust innovation has placed technology at the core of all industries seeking growth. Recent times have witnessed an inclusion of API-enabled tech in the banking and finance industry and the benefits as derived have been so stark that the technology is now speculated to be capable of bringing about a revolution in the industry and changing it for the better. The benefits carried by the technical infusion include increased flexibility of scales, reduction of monetary and time resource consumption, and greater pace.

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