How digital banks can learn from fintechs to drive seamless customer experiences

By Ada Westerinen, Director for EMEA Solutions at MuleSoft

The pandemic transformed the way many organisations do business, and nowhere more so than in the financial services sector. Some 43% of global consumers last year claimed the way they bank changed due to COVID-19, as branches closed and customers were forced towards digital channels. Now they’ve seen the benefits of doing more of their banking online, the genie’s out of the bottle, and there’s no going back. Today’s consumers expect more seamless, connected digital banking experiences than ever before.

This is good news for newer, digital-native fintechs, but less so for larger incumbents. The former have agility built into their DNA, enabling them to form new partnerships and quickly roll out new products and services to meet the rapidly changing needs of the market. However, traditional banks have historically struggled with legacy technology, and find it difficult to free-up and connect their data and systems to deliver the seamless experiences their customers now demand.

A composable future

The rise of open banking gave traditional financial institutions the foundation they need to address these challenges and embrace a more digitally connected future. It heralded the beginning of a new era of cooperation between third parties, and of traditional banks evolving into service providers. However, if they are to fully reap the rewards, banks must go beyond basic compliance and look at how they can harness their API ecosystems to behave more like a fintech, and deliver the digital-first experiences their customers desire.

UK foreign exchange (FX) and cross-border payment service provider Crown Agents Bank is a prime example of how a traditional bank has been able to harness an API-strategy to meet the needs of its customers in today’s digital-first world. Crown Agents Bank wanted to move away from its historic reliance on custom code and tightly coupled, one-off integrations between front-end services and core banking systems to ensure it could process a greater number of digital transactions. With an API-led approach, the bank became a composable enterprise that can seamlessly connect with its fintech partners and scale rapidly, increasing the number of payments it can process from 1,500 to 50,000 per day.

Here are five ways traditional banks can take a leaf out of the fintech book to drive their own digital banking success stories:

1. Lose legacy, aim for reusability: The latest MuleSoft Connectivity Benchmark Report reveals that only a quarter of banking applications are currently integrated. This highlights there’s still a strong reliance on legacy custom code integrations, which are expensive and time-consuming to build and manage. Reusable APIs offer a better, more efficient way to deliver connected digital experiences. They’re essentially like digital building blocks, connecting disparate data, applications, and systems to enable banks to create innovative new services, from faster loans processing, to streamlined account onboarding. Because APIs are reusable, there’s no need to rebuild the same point-to-point integration for every new project, which accelerates time-to-value and enhances business agility.
2. Creating an ecosystem of partners: Today’s digital experiences rely on multiple service providers working in tandem, so banks can no longer go it alone to meet their customers’ needs. They need to collaborate with mortgage brokers to enable straight-through loans, partner with car dealerships to offer finance at the point of purchase, and work alongside other financial service providers to create truly personalised customer experiences. That makes partnerships with third parties, including fintechs, an essential prerequisite of success. This is where open banking comes into its own, and a reason why scores of countries around the world are implementing regulations in this area. External APIs are a crucial technological component of open banking and a key facilitator as banks evolve into platform providers. Building out an ecosystem of partners can enable banks to roll-out a range of value-added services that go beyond traditional banking, which can boost customer retention and create new opportunities for acquisition.
3. Enabling automation: Fintech players achieved much of their early success through judicious use of automation. Traditional banks are now looking to leverage those same capabilities to optimize their own operations. MuleSoft’s IT and Business Alignment Barometer found 96% of financial services organisations have implemented or are in the process of implementing automation initiatives, to create better experiences for the customer and boost operational efficiency. By using API-led strategies to support these automation projects, banks can drive greater convenience, speed, and cost reductions, by freeing-up data currently residing in silos and bringing it together in a single source of truth. This can help to accelerate the launch of new digital products and services and reduce the manual workload on employees, by enabling more accurate automated decision-making.
4. Empower business users: Thanks to a pandemic-related surge in demand for digital banking services, IT is under increasing pressure to deliver. It’s no surprise that four-fifths of banks recognise the need to make data and integration accessible to business users to ease the pressure on IT teams. An API-led approach can support this, by empowering business users to create connected experiences with low and no-code tools. In fact, the majority (89%) of financial services organisations agree that being able to make use of reusable APIs will improve business outcomes and enable more connected experiences. The result could be a more fintech-like culture for traditional banks, defined by increased productivity and agility.
5. Unleash the power of AI: Across the globe, fintechs have been early adopters of AI-powered analytics to support enhanced decision making and improved customer experiences. Banks must follow suit, but many have struggled to do so effectively due to their legacy technology environments. Effective use of AI requires financial service firms to free-up data currently sitting in disparate silos, spread across different environments. APIs are key to solving this challenge, by unlocking that data to uncover new insights and enhanced business value through AI-driven decision-making.

As more traditional financial institutions turn to an API-led strategy to close the gap with fintechs, we’ll enter a new era of fast-paced digital banking innovation and seamless customer experiences. Their success in delivering these strategies may well define the industry’s winners and losers over the next decade and beyond.