If financial services were an organism, API is the new gene embedded in its DNA, says Akash Sinha of Cashfree

Today, fintech players are constantly disrupting the financial services ecosystem. They're pressing banks to change their business operations and enhance the overall experience of the customer. Open banking is a disruptive extension to this, enabling banking institutions to collaborate with fintech platforms and adopt open-ended technology to stay ahead of peers.

With the pandemic impacting global business operations, open banking based products have multiplied geometrically since 2020.

Delivering a keynote on Day 2 of TechSparks 2021, YourStory's flagship startup-tech event, Akash Sinha, CEO and Co-founder, Cashfree Payments, said, "API banking is fintech’s next big bet."

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"We're now in a digital evolution where everything is becoming distribution of data to a globalised network focussed on software and servers," said Akash.

Banks tend to be restricted by physical constraints that lock them into old ways of doing things. So, how do you move out from this monolith lethargic design to be more of a microservices organisation that can deal with projects for a week instead of spending a year on them?

According to Akash, it calls for a culture change as much as a change in the mindset. "What we're witnessing is the complete open-sourcing of financial services through apps, APIs, and analytics. The front office of tomorrow will be apps, the middle office will be API, and the back office will be analytics. All of this is being done by specialists called fintech startups," he said.

Banks today have to pivot from doing everything internally to being the curator of apps, APIs, and analytics marketplaces that give the best overall experience to customers.

"As a customer, I wouldn't want to approach a startup or try and put it together myself. I'd rather have a trusted brand - my bank - do that for me."

APIs in the banking industry

Application Programming Interface (API) enables easy access to banking services, products, and data, helps you innovate efficiently and become agents of disruption with transformative potential.

"APIs are multipurpose tools which enable compliance with open banking regulations, they give access to an ecosystem of related businesses and they also signify legacy AI systems," says Akash.

When it comes to API limitations, it's a steep climb. Many banks have taken initial steps and have seen positive returns in terms of technology development and business expansion.

In China, for example, they have various ecosystem models and they’re bringing together fintechs, companies, banks, and financial service providers to buy and sell products, share technology, and expand their networks.

In Europe and the US, banks are also starting to work with or invest in fintechs to create more revenue streams or more tailored customer experiences.

Some of them have even launched aggregator apps that bring together account information for a number of institutions, or have created online marketplaces in which partners can pick and choose products and services, sometimes to integrate into their own platform.

Creating a superior customer experience

As digitalisation accelerates, banks need to have customer centricity at heart. India has made fairly good progress in this regard. A decade ago, the RBI introduced NEFT and RTGS, followed by NPCL introducing IMPS. It was a paradigm shift in the way banking services were offered to the end customer. Then came internet banking, and now, API-led banking.

Although APIs have been widely used for over a decade, they have recently become more pervasive in the financial services sector.

With real-time banking capabilities getting enhanced, cash flow visibility increases, it reduces administrative hurdles with regard to managing their own finances like applying for a business loan, checking your creditworthiness, etc. Customers today can have a single view of all their finances by being able to control, track, and analyse all financial movements, all in one place.

"API banking has led to innovation that's lowering the cost in a way that is economical to serve the underserved, unbanked, and offering services better suited to their needs," said Akash.

The most important fallout is analytics. Banks can now collect substantial quantities of data relating to customer behaviour, enabling them to create more tailored products and services, and also specific marketing initiatives.

Banks are getting increasingly convinced that in order to grow and extend the banking solution beyond their own banking channel, they need a strong partnership with fintechs through API banking.

"Banks will continue to be the custodian of customers finances and various products and services, without compromising on security and compliance, while fintechs will be able to usher greater innovation, better technology to create a customised interface - leading to a larger customer adoption and customer delight," said Akash.

Tackling regulations in the industry

Financial regulators and national authorities are now acknowledging the need for the digital exchange of financial data. If you look at most of the economies which are trying to be the fintech centres of the world, their regulators are all in favour of integrating with technologies.

"Regulators exist to augment the servicing standard for the customers. They also want the competition to exist and thrive, as a means to serve customers more efficiently," said Akash.

He added, "At the end of the day, it doesn't matter if growth is driven by market forces or government regulation. The end result of both kinds of economies is higher innovation."

Augmenting with third-party services

Now, open banking APIs are necessary for the functionality of banking as a service (BaaS). It involves banks opening up the API for fintech players to increase transparency. However, it goes beyond data sharing, it's about the functionality of core financial services.

Akash said, Cashfree's API banking platform allows you to send payouts in real-time to multiple accounts at different banks. It offers the feature to verify UPI IDs for bulk payments and send money directly to wallets or debit cards.

"Banks have enormous funding capabilities and experience with operating large processing networks, huge customer base, and customer trust. Fintech players, on the other hand, have a culture that gives importance to innovation, speed, and customer satisfaction," said Akash.

The battleground is all set for digital evolution in the banking industry, which is being played by digital consumers and digital banks. APIs are the arsenal that will provide the ammunition. The bank of the future will make money by being the most intimate provider of service to the customer.

Akash concluded by saying, "If financial services were an organism, API is the new gene that is being embedded in its DNA. This mutation will create a new paradigm in API banking, whose potential is yet to be fathomed."

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