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How APIs Help Financial Institutions Integrate Best-of-Breed Fintechs

By Emily Sweillam, CMO, Kinective

June 2023

Financial institutions face increasing pressure to drive operational costs down while improving service to accountholders. Recognizing they cannot face these challenges alone, many are choosing to partner with fintechs that can integrate best-of-breed fintech solutions using application programming interfaces (APIs).

Finastra research shows that 90% of financial institutions are already pursuing new fintech partnerships to improve their offerings. Three-fourths of those financial institutions prefer fintechs that can provide black and white revenue gains stemming from streamlined processes, leading directly to increased wallet share and retention.

Fintech integration also comes with challenges, according to the Finastra research, such as interoperability constraints, legacy system upgrades and automating manual processes. These are identified as the main challenges FI teams face when integrating fintechs into their product offerings, highlighting the need for flexible software solutions powered by open APIs.

Transforming Legacy Systems

Some industry experts have suggested financial institutions should prioritize around modernization of core banking to move the industry forward. This entails integrating best-of-breed technology with open APIs to automate processes that transform both members and staff experiences.

For example, using a combination of robotic process automation (RPA), machine learning (ML) and artificial intelligence (AI), financial institutions can streamline processes, thereby freeing the workforce to focus on tasks that drive a bigger impact for the members and business. However, institutions must not digitize without considering the human interaction that will be replaced, as members prefer a hybrid approach.

Tearsheet’s The Big Bank Theory Conference found selected tech strategies that work such as adapting current and legacy infrastructures and processes to new products, demands and regulations; focusing on modularization, untangling frameworks using APIs; and developing tech agility to roll out products quickly by embracing independent research and protracted testing.

According to global research firm Omdia’s IT Enterprise Insights Survey, seven in 10 IT decision-makers in retail banking plan to increase spending in 2023. This involves moving to the cloud and composable banking – which leverages best-of-breed solutions to manage front- and back-office development – to enable digital transformation more effectively. Additional steps include developing core banking around real-time, API-first and cloud-native solutions that can offer flexibility and scalability benefits.

Investment should also produce a high level of automation and use of analytics. Personalized and consistent cross-channel member experience and a comprehensive view of the member across business lines are the top IT projects for omnichannel banking strategy, according to Omdia’s survey.

Financial Institutions Trend Toward Fintech and APIs

Tech sustainability achieves importance through definitive approaches by financial institutions. Some financial institutions report difficulty in understanding the transformative technologies also impacting existing rules; and what tools can help them stay compliant with evolving regulations.

For financial institutions, achieving optimum branch automation and digital transformation centers around a form of “co-opetition” – collaborating with fintech competitors to change the banking tech ecosystem.

Credit unions and community and regional banks need fintech partners because many lack their own technological staff and resources. Besides, many financial institutions recognize their members are familiar with – and in many cases are already using – innovative best-of-breed tools that deliver better digital experiences. So, many financial institutions ask, “How do we incorporate them?”

These financial institutions must decide how to better engage their accountholders, whether through a partnership acquisition, a simple agreement, internal development or access through the cloud. It is a matter of how these financial institutions get on board with these fintechs now.

API-Delivered Best-of-Breed Financial Services

Financial institutions increasingly view APIs as adaptable tools that can enable best-of-breed value. APIs are now the de facto and most important method to deliver expanded financial services. The turnkey integrations provided by partners like CFM+NXTsoft has allowed a new fintech generation to thrive – without extensive developer resources needed in-house.

The API model lets financial institutions optimize their core services by providing an opportunity to fill gaps within the product and service of their choosing with selected allies. NXTsoft, one API Connectivity solution, provides connections to 80+ Fintechs across more than 40 different banking cores. This access massively expands the choices credit unions have to meet changing consumer demands and offer a differentiated experience.

Connect with Kinective to learn more.

About Kinective

Kinective helps credit unions optimize the foundational technology behind transformation by integrating cash recyclers, self-service kiosks, tablet-banking interfaces and other peripherals into credit union cores. These integrations and powerful data analytics capabilities allow credit unions to simplify the complex banking ecosystems of disparate technologies, and leverage hardware to its full potential and support modern banking experiences.