Why Financial Institutions Must Prioritize API-Led Growth in 2025
SunTec Business Solutions
Our vision is to enable every value exchange in the digitally driven world.
One doesn’t need to gaze into a crystal ball to say that the future of banking is open, embedded, and API-driven. This shift is partially driven by government mandates and regulations on open banking, but the larger driving force is the customer themselves. Traditional banking models can no longer deliver the personalized, relationship-based, and value-driven engagement that customers now expect from their financial services providers. Are traditional banks truly ready to make this shift? And if not, then what must they prioritize to be able to leverage this new era of banking to their advantage?
Driving Disruption in the Banking Sector
Not only is the modern customer demanding personalized offerings from their financial service providers, but they also expect their providers to act as trusted advisors and partners. And they are not hesitant to take their business elsewhere if these expectations are not met. At the same time, fintechs and tech giants are making significant inroads into the banking space with their cloud-native offerings and agile technology foundations that allow them to leverage customer data for personalized and innovative offerings.?
The once staid banking sector is working to adapt to these new market conditions with new business models that open access to customer data and enable customer-centric innovation. In fact, today, financial services are moving out of the four walls of the traditional bank into a comprehensive ecosystem of financial and non-financial partners that aim to collectively meet diverse customer requirements. The sector is witnessing the emergence of open finance, embedded banking, and Banking-as-a-Service (BaaS) that put the customer at the heart of the financial ecosystem.
Open Banking to Open Finance
Open banking is the practice of sharing customer data with third-party providers to improve the services and products being offered to customers. Open banking has not been around for very long, but there is significant regulatory support behind it. For instance, regulations like Europe’s PDD2 and the UK’s CMA Open Banking Initiative mandate banks to open APIs for third-party access to data. Australia’s Consumer Data Right grants consumers rights over their financial data, enabling them to switch providers easily. Brazil’s Open Banking Regulation requires banks to share data across the financial ecosystems, while Singapore’s API Playbook by the Monetary Authority of Singapore encourages banks to voluntarily adopt open banking standards. And open banking is growing by leaps and bounds.
As of January 2024, in the UK alone there were?over 9 million active open banking?users and more than 14.5 open banking payments. In fact, we are now witnessing the emergence of open finance – sharing of a wider range of financial data like mortgages, pensions, insurance, and investments. This allows the financial services ecosystem to further customize offerings to meet customer needs. Reports suggest that open finance has the potential to add ￡30.5 billion per year to the UK’s GDP.
Embedded Banking and BaaS Models
Banks are also exploring embedded banking models, where they integrate their financial services into other non-financial platforms, to enable easy access to services like payments, loans, and insurance. Once again, the driving force behind this new model is customer demand for seamless, value-driven, and personalized experiences with their financial services provider. The embedded banking market is expected to increase from?USD 20.3 billion in 2024?to USD 149 by 2034. Closely related to embedded banking is BaaS, where banks provide their infrastructure to other businesses to build their own financial services via APIs. The third-party business can quickly and securely roll out their products and services. And the banks in question can tap into a new revenue stream by monetizing APIs. They can opt out of customer-facing processes by allowing the other business to handle that while they focus on core competency. The BaaS market is expected to grow to?USD 60 billion by 2033 from USD 12 billion in 2023, growing at a 17 percent CAGR.
The Need for API Integration
Each of these emerging business models marks a shift towards customer-centric business models, and each of them necessitates seamless API integration capabilities. Banks now must ensure interoperability, seamless data sharing between internal systems and external platforms, and flexible as well as scalable integration strategies. Unfortunately, most banks still work with monolithic core systems that are not designed for real-time API integrations. Most banks invested in their core banking systems several decades ago, and they remain powerful drivers of key processes. But they were not built for this era of digital innovation, and they lack the scalability, agility, and flexibility that modern banking demands. Additionally, when it comes to API-based business models, they cannot facilitate the seamless integration required between themselves, the document and signature systems, CRM systems, and external APIs. Neither can they ensure seamless data flow.
A Middleware Approach
Most banks are hesitant to embark on core transformation efforts because of the significant cost and risk associated with such an endeavor. The good news is that now they don’t need to touch the legacy core to tap into the emerging API economy. They can simply choose to deploy a robust cloud-native, microservices-based middleware platform over their legacy core to separate the systems of records from the systems of engagement. Such a platform can power API integrations with external partners and unify data into a single system for real-time access and analysis. With a middleware platform in place, banks can securely leverage API-based open finance, embedded banking, or BaaS models to deliver personalized and value-driven offerings to their customers.
The banking sector is going through a period of sweeping transformation. The emergence of these new business models can unlock new opportunities for revenue growth and profitability. But traditional banks must establish the robust technology foundation required to fully tap into the API economy. Choosing the right middleware platform can help them build that foundation and prepare to leverage new banking ecosystems and business models for continued growth.?
What steps do you think banks must prioritize to make this transition successful? We’d love to hear your thoughts—please share your comments below!
Latest Insights
Disclaimer: All copyrights to the references made to, including, but not limited to, any brands, logo, trademark, herein, belong to their respective owners. SunTec does not claim any right/ownership/exclusivity over the use of these references and is hereby absolved of any liability that may arise relating to such usage.