FinTech Partnerships Force Banks to Fix API Oversight

Adding a FinTech partner has become much easier than managing dozens of them over time. To that end, banks and credit unions have been relying on outside providers for everything from payments and digital onboarding to fraud prevention and data analytics.

Partnerships remain central to innovation strategies, but each new connection also expands the number of application programming interfaces (APIs), credentials, user permissions and third-party relationships that financial institutions must oversee.  Not surprisingly, operational governance is moving from a back-office concern to a strategic priority.

Recent PYMNTS Intelligence research illustrates why financial institutions continue to embrace these relationships despite the added complexity. More than half of credit unions surveyed said external partners help them innovate faster or at a greater scale than they could achieve on their own, while 61% cited faster implementation of new capabilities as the leading benefit of working with FinTechs. Nearly 58% also pointed to stronger regulatory compliance and risk management, suggesting that partnerships increasingly serve operational as well as growth objectives.

The research also shows that collaboration has become an established part of technology planning rather than an occasional initiative. Just 0.6% of credit unions said they could innovate entirely without outside partners, while nearly two-thirds of Early Launchers reported that external providers substantially increase the speed and scale of innovation. At the same time, institutions are directing those partnerships toward practical priorities such as mobile and digital payments, data analytics, fraud mitigation and digital onboarding instead of pursuing entirely new product categories.

Our data shows that collaboration itself remains an ongoing challenge. Financial institutions regard implementation delays as a reasonable consequence of governance, regulatory oversight and integration work, while FinTechs tend to see those same projects as slowed by lengthy approval cycles, inconsistent processes and differing standards across institutions. Those contrasting perspectives illustrate that the challenge has shifted from finding partners to coordinating them effectively.

Governance Moves to Center Stage

The operational burden grows with every additional connection. Each FinTech relationship typically introduces new APIs, authentication credentials, user permissions and data-sharing arrangements. Those connections must be monitored throughout their lifecycle.

That backdrop helps explain a series of recent technology announcements that share a common objective despite addressing different parts of the banking technology stack.

CSI’s recently introduced Open Integration Hub is one example. The platform is designed to provide banks with centralized visibility into FinTech integrations, API credentials, user access and third-party connections through a single management layer.

The same direction can be seen elsewhere in the market. Alkami recently expanded its open banking capabilities through direct Financial Data Exchange (FDX) API integrations with Yodlee, replacing credential-based aggregation with standards-based, consent-driven data sharing and third party access.

The thread across the industry is that financial institutions are eyeing a streamlining of operations that moves beyond enabling integrations to supervising them across ever-more-complex technology environments.

The PYMNTS Intelligence findings suggest that institutions understand the challenges of those connections. As financial ecosystems continue to mature, the onus is on giving institutions consistent oversight of every API, credential, user permission and third-party connection those partnerships create. Innovation remains the objective, but governance is becoming the discipline that allows it to scale safely.