What are the effects of the so-called API Economy on the financial industry
In today’s digital landscape, application programming interfaces, better known as APIs, control everything from the complexity of Amazon Web Services to a simple TikTok. However, not only large technology companies can benefit from APIs.
Increasingly, companies in all industries are rethinking their software components and breaking them down into smaller, more modular components. These modular interfaces, known as APIs, help create user-centric applications that better support the organization’s goals, resulting in increased productivity and efficiency.
API tools have played an important role in software development for some time. However, for the financial industry, data integration has become increasingly important as it collects data from separate systems and makes it more valuable to the business.
What is API Economy?
According to the prediction of software experts, as companies realize the broad benefits of APIs, they will progressively dismember all of their current monolithic systems, dividing them into many interconnected and highly specialized microservices.
Already today, most companies, especially those in the financial industry, have a developer section on their website, where they publish their APIs. The public availability of these APIs allows integration with third parties in a way, so fast and simple, that it is invigorating the economy in an unprecedented measure. This dynamism is what has been called the “API Economy”.
The API economy is creating new business models and opportunities
The API economy makes data and services more accessible and flexible, both within and outside of organizations. In this way, business ecosystems are growing organically, being built with new, informal and spontaneous alliances, in a way that may not have been possible before.
By creating API-based business models, companies can scale quickly. This can be done by accessing third-party data and services, or by using APIs to transform your own data and services into a platform that empowers others to take advantage of it.
APIs in the innovation of the financial industry
Most of the companies in the banking industry have internally developed APIs to monitor and manage checking accounts, credit cards and in general all their financial products. In addition to this, banks widely use third-party APIs to offer services and features to their clients, but integrating and extracting information from their own data repositories.
A good example of the use of APIs that use external services are chatbots for sending information on demand, such as account statements or account balances, which use interfaces such as WhatsApp or Messenger to display information.
Learn about more banking solutions that use API integrations.
In the case of the insurance industry, third-party APIs are prihttps://www.danaconnect.com/automations/?filter_automations_industry=commercial-banksmarily used to verify claims adjudication and underwriting decisions. The most widespread use of APIs in the insurance industry is the digitization and validation of documents using artificial intelligence from services such as AWS or Google with intelligent flow orchestrations such as DANAConnect. These validations make it easier for the end customer to digitize and enter the data in a structured way, saving thousands of hours per year for employees, physical document filing space, as well as the costs of sending paper documents.
It is common for some systems not to communicate with each other. For example, a bank’s legacy checking account system might not be able to communicate with its CRM or mobile app. This results in significant manual labor for employees and data duplication problems.
A standardized API is an effective way to connect systems, reduce workload, and improve overall efficiency. Additionally, APIs allow to integrate an automated platform into an existing system, relieving employees of manual tasks and reducing human error.
Learn more insurance solutions that use API integrations
What are the benefits of using APIs?
- Continuous innovation. Public APIs are made available to third parties, which opens up a dynamic exchange space for constant improvements, as well as the visualization of new and even unexpected uses.
- Improved customer experience. APIs facilitate access to services and the exchange of data between platforms that add value to the end customer by improving their experience.
- Final products are delivered faster. APIs allow developers to choose from a set of industry-approved open tools rather than creating them from scratch.
- New forms of income. A faster product launch allows companies to experiment and generate revenue in new ways.
- Technification of non-technical industry. It is possible for companies, even if they are not software developers, to use APIs to improve their business in a way they could never afford if they had to write their own code.
- Democratized collaboration. APIs enable collaboration between large, medium and small businesses, and even independent individual developers with industry giants.
The challenges posed by the API economy
Before the use of APIs was so widespread, traditional security practices were concerned with protecting a network with a limited perimeter. Particularly for companies using cloud-based infrastructure, this traditional perimeter no longer exists. New architectures allow local and cloud infrastructure to merge seamlessly, posing new security challenges.
As APIs are here to stay, we must protect our data as much as possible. To ensure security, the API network must be closely monitored and controlled, code must be updated, TLS security protocols used, and of course customer and employee education is critical.
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