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Move to intelligent banking by embracing open APIs

visualization of incoming data

In the early days of financial technology (fintech), there was a somewhat distant relationship between fintech startups and traditional banks. Some spoke of how fintechs were going to “disintermediate” banks. Some banks, in turn, promoted the idea that consumers should cast a wary eye towards these less-regulated upstarts. Those notions have evolved, and integration of fintechs and traditional banks through open APIs is accelerating the digital transformation of the banking industry.

In the last few years, banks and fintechs realized that there are benefits of partnership, cooperation and collaboration:

  • Fintechs gain built-in customer bases.
  • Banks access the innovative digital products their customers now demand.

Overcoming the inertia of legacy systems

For banks managing legacy systems—sometimes older and built for an analog age—it can be challenging to innovate and develop the digital payments products today’s customers expect. In fact, a complex legacy IT environment is possibly the greatest barrier to a bank’s ability to drive digital transformation. The cost of replacing and updating those systems are the most significant obstacles to adopting new technologies. That’s where fintechs come in.

Open APIs and open banking

Thankfully, there are many ways for banks to quickly roll out innovative digital offerings without the costly—and potentially risky—replacement of core IT systems. One approach that is gaining popularity is open banking, which includes using application programming interfaces (APIs) to connect banks’ systems with innovative third-party digital products offered by fintech companies. Regulatory statutes, such as the Payment Services Directive 2 (PSD2) in Europe, are driving adoption of open banking, and consumer demand is also spurring growth in other parts of the world.

Banks that jump ahead with open banking initiatives will enjoy a first-mover advantage, according to a recent study in the MIT Technology Review. In the U.S., forward-thinking banks have already embraced open APIs. Those that don’t risk falling behind.

Innovators like Episode Six use the power of APIs for quick integration without overhauling existing IT infrastructures or investing in new systems altogether. Essentially, financial institutions become future-proofed by being able to easily integrate the best of what’s already out there or investing in new systems altogether.

The Episode Six platform includes standard components that integrate with existing banking infrastructure—such as ISO20022 and payment systems—meaning that such features are readily available on the open API platform. And from a technical perspective, the solution offers the desired business capabilities using the most advanced technologies. For example, Episode Six sits on top of the Microsoft Azure cloud and leverages Azure Kubernetes Services and Azure Database for MySQL. The platform also uses best-in-breed cloud security technologies for authentication, network isolation, data encryption at rest and in-motion; keys are managed with the Azure Key Vault service. With its open API architecture, Episode Six clients can adapt their products to new market trends without interrupting service.

Azure services help banks become more nimble

Using its comprehensive set of APIs, Episode Six can deliver seamless integration to any bank in the world with ease. Any bank can call an API—a conceptually simple act. For the Microsoft Azure cloud, this simplicity is an important factor because it allows for quick deployments of the cloud technologies that banks need to achieve nimbleness. And compliance can be more easily automated and maintained with Azure technology.

For example, the responsive and scalable nature of Azure cloud services means that banks and payments processors can plan for seasonal peaks. Burst capacity can be provisioned on-demand and then de-provisioned once the peak is over.

Financial institutions also worry less about compliance headaches when using cloud services. Providers such as Microsoft Azure are regularly audited to validate compliance with regulatory and industry standards such as PCI DSS. By deploying in the Microsoft Azure cloud, significant infrastructure components and management services eliminate the requirement for the bank to do its own internal audit, or for regulators to independently assess these solutions. (Note however, that compliance is a shared responsibility—banks must implement controls on internal systems to achieve and maintain compliance.)

Several banks are already benefitting from partnerships with innovative fintechs, such as the Mercantile Bank of Michigan, a $3.2 billion community bank that last year partnered with to use artificial intelligence to help customers budget better. Others have leveraged partnerships to improve small business lending and streamline corporate payments.

Recommended next steps

Visit the Azure marketplace (AppSource) and filter by the keyword Financial services, or search by an appropriate keyword to find partners who can accelerate your digital transformation.

Find out more about Episode Six by going to Redefining What is Possible.