It is evident that it is impossible to progress without making changes. However, unlike many new-era retail finance companies, traditional banks have maintained their conservative approach over the years. In fact, many modern financial institutions are employing various recent technological tools to progress, while common banks continue to do the opposite.
It now appears that banks will have to adopt new technologies to comply with upcoming regulations or simply not to lag behind the competition. The year 2015 could be a fundamental change for many important participants in the financial industry. Let's find out why.
The Competition
For decades, most banks only had to compete with each other because there were no indirect rivals that could capture a considerable number of their clients. However, all this has changed. Nowadays, more and more lenders appear on the Internet whose main purpose is to take one of the most common products of banks: credit. Online loans soared in 2014 with companies like Kreditech hitting record equity. In 2015 the market looks even more promising, as Kreditech entered Forbes' list of "The Next Trillion Dollar Start-Ups." The Internet lending sector uses state-of-the-art technologies and provides better services in a faster way, in addition to having a greater growth than the banking industry. For this reason,Only a few banks will be able to keep up with online lenders in relation to consumer loans in 2015.
In addition to indirect competition, the banking sector is also facing more direct rivalry. Banks are no longer places that must be visited to carry out an activity, making it difficult to achieve and sustain the degree of growth necessary solely through the creation of new branches. Banks not only need to adopt new products, but intelligently promote and distribute these products outside of branches.
The Legislation
Some of us have heard about the Payment Services Directive II (DPS II) that seeks the introduction of APIs open to the banking sector. Banks are expected to adopt new technologies and start sharing information with each other, resulting in more transparent and efficient financial services. There are some banks that are generally against this directive, as it can affect their profits or simply make customers look for other banks with more attractive products.
However, there is a saying that says "Change before you have to," which applies especially to the current problems facing banks. Regardless of whether DSP II brings the mandatory use of banking APIs in 2015, in the end all financial institutions will have to comply with this standard. Banks that are able to integrate APIs from now on will no longer have to worry about approaching government deadlines. Furthermore, these banks will have gained knowledge about how to use and benefit from banking APIs, while their competitors would hardly be adopting them.
The solution
So how exactly do banking APIs help banks and what are their main benefits?
First, a bank that integrates a banking API can make it easier for the customer to apply for an account. Also, since all regulated financial institutions have to carry out Know Your Customer policies, with banking APIs it is not necessary to carry out this process twice. After a person opens an account at a certain bank, they can use the same credentials to open another account at a second bank. This frees up a significant workload for the bank while dramatically simplifying the account request process for the customer.
In addition to the improved Know Your Customer policies, banks gain access to contextual offers. After a customer receives authorization using their old bank credentials, the new bank will know which products it uses and can better meet their needs. This is undoubtedly beneficial for banks with a competitive offering, as they can provide attractive offers to their new customers, which in turn attracts more people to use their services. This also benefits consumers because they receive better value.
Last but not least, banking APIs enable financial organizations to quickly perform credit ratings without the need for human intervention. Whereas in the past banks had to spend time with the customer to establish their record or simply rely on a credit rating, they can now assess a person's creditworthiness based on their record with the competition.
conclusion
We believe that banking APIs like KontoX will be able to change the entire philosophy of the financial sector because they are a win-win solution for both clients and institutions. Banking APIs can drive banks more growth through attractive offerings while customers get better deals. What you think? Is the industry ready for an API?
