MuleSoft: the role of APIs in a competitive banking arena

APIs are vital as banks must collaborate in order to remain competitive. MuleSoft’s Danny Healy delves deeper into what they really mean for the future of finance…

Technology giant MuleSoft is a leading provider of integration software which enables businesses to connect applications, data and devices. In an increasingly connected world, having the right infrastructure in place becomes ever more vital for the finance industry. With the sector being disrupted by open banking and every institution or fintech worth their salt adopting APIs, what exactly does this mean for a connected financial future?

Digital glue

An application programming interface, or API, is described by MuleSoft’s Danny Healy as “digital glue”. The financial technology evangelist continues: “They are what makes it straight forward for one application to exchange data and communicate with another application.” For example, mobile apps can connect to a database belonging to an organisation via APIs to facilitate communication and allow the device to access the right data.

The connectivity afforded by this “digital glue” allows banks to utilise third party capabilities, says Healy. “If you can organise your capabilities into an application network, you can essentially plug in new features to existing back-end systems’,” he explains. This way, a bank needn’t develop all the software or tech it needs by itself, and can collaborate with technology organisations to improve its offering. This has promoted a shift in the way even the largest FIs operate. “The way banks think about their application network is not just the systems exposing the capabilities within their own data centres, but potentially plugging in capabilities from third parties,” Healy adds.

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This doesn’t just mean banks can work on their own apps and networks, but they can add their services to another organisation’s app – such as adding their loan or insurance offering to the website or supplication of a car dealership for mutual benefit. “It really extends beyond just the bank’s traditional legacy systems,” says Healy.

Open banking brings tech forward

APIs and the collaborative open banking landscape they facilitate have really changed the meaning of technology within finance. “First, we need to understand what technology looks like within banks,” Healy begins. “The way the technology landscape has evolved over the last couple of decades hasn’t happened with any kind of plan. Technology was accumulated in banks in a project by project way – so today many banks have silos that don’t communicate with each other.” With technology operations siloed, the same is true for data, meaning the plethora of information at companies’ fingertips has yet to be utilised by banks for the greatest possible benefit.

“Innovations are now starting to appear within mobile banking apps from a number of banks,” Healy continues. “Some of that is in response to challenger banks which have created a more competitive environment.” This competition has promoted banks to look at the way they utilise their data and capabilities, and adopting APIs mean they can firstly better connect their legacy systems to make the most out of what they have, and then innovate with the help of third parties. “There’s a lot of data there, but it’s very fragmented,” Healy comments. “So they’ve thought about how they can expose this data in such a way that their banking capabilities can be consumed really easily into a new innovation project.”

Bringing data together

With all the information in their possession, bringing this together through APIs and technology transformation is a mammoth task for even the largest financial institution. “In terms of where data and banking capabilities are today, it’s not the most accessible,” says Healy. “It was all based on technology from 10 or 20 years ago, not the sort of tools a mobile developer would use, for instance. However, they can move forward by making those older systems look to the development teams building those kinds of mobile apps. They can expose their underlying capabilities with a set of APIs so it becomes more consumable.”

Banks are becoming more and more interested in looking at third party applications to make the most of their existing capabilities. Indeed, MuleSoft’s recent Consumer Connectivity Report found that 30% of banking customers in the UK would consider getting banking services from Google, Apple or Facebook, with the figure increasing to 45% within the 18-35 demographic. Banks cannot afford to ignore this shift in customer expectation, and the facts are that customers expect the same seamless user experience when managing their current account as they do from their favourite social media platform.

Bringing legacy systems into line and transforming the customer experience isn’t just a question of having the right technology in place – banks must also change their way of thinking. “They need to think about how teams are organised to support the operating model,” says Healy. “For example, when a new feature needs to be built in a mobile app, that doesn’t happen automatically – you need some enabling technology, like a catalogue. But you also need teams to be enabled to use this central catalogue and to know how to discover it, know how to try out an API, to understand, play around, and then to consume it, without having too much dependence on the underlying teams and back end systems as this will cause a bottleneck.”

The rise of the fintechs

While APIs have given banks a tool to compete against fintechs like challenger banks, they have also created an open banking ecosystem which breeds this kind of innovative startup. “Fintechs come in all shapes and sizes, and banks will want to adopt the right strategy to, yes, compete with them in some cases. Increasingly, however, banks will look to fintechs to partner with. Not all the good ideas can be thought of within a bank, and API strategy allows you to put the capabilities in the hands of people outside the bank who might have great ideas.”

APIs, concludes Healy, are key to the strategies banks need to develop their services, both in terms of collaborating with third parties and exposing their own underlying capabilities. “That is the reason MuleSoft provides technology to organisations,” he explains. “They want to have the flexibility to be able to plug and play and change with capabilities over time. Ultimately, we don’t provide products banks use as a whole: we provide the capability to build products. For banks to control how they open their data, APIs can be a turnstile: if people want to access your capability and get data from underlying systems, they should go through an API. This makes sure underlying services are accessed to the greatest potential, in a secure and controlled way – which will be increasingly vital for banks.”

This article first appeared in the May issue of FinTech Magazine.