‘Risk as a Service’ Helps Banks Monetize Back-Office Expertise

Application programming interfaces (APIs) are transforming all manner of business verticals, improving the connectivity between computers, yes, but also companies, and even departments within companies.

Matt Naish, head of product strategy at FISPAN, told PYMNTS that this connectivity can spur new innovations within financial services, to the point where banks can offer “risk-as-a-service.”

Know your customer (KYC) and know your business (KYB) processes are becoming ever more sophisticated within financial institutions (FIs), and APIs allow them to integrate more data and analytics to help determine legitimate transactions and entities (and loan exposure) in an age where money laundering and geopolitical risks are mounting.

“You’ll see a lot more from banks and risk-as-a-service, particularly as we see accelerations in real-time payments and open banking,” Naish said.

The use of APIs is on the rise across industries. Yet only 30% of FIs used them at the start of 2021, which indicates there’s still some greenfield opportunity for modernization within the banking system. Sixty-four percent of companies reported that they lack full integration between treasury management and enterprise resource planning (ERP) systems.

Cultural and Mindset Changes Needed

But as Naish told PYMNTS, whether in the banking sector or corporations on a global scale, “the lack of integration, generally speaking, is not a technical problem. The technology bends to our will.”

Read more: PYMNTS Intelligence: Taking Down Commercial Banking Barriers With APIs

The problem is with change management and process management, he said. Call it a cultural barrier of sorts. He cited a statistic from not all that long ago: 50% of customer relationship management (CRM) implementations fail — not because of the software but because of the inefficiencies of layering new systems over legacy infrastructure.

Within financial services, there are different ways to approach API adoption — they can build them on their own, they can buy APIs and bring them in-house, or they can integrate with partners and platforms (such as FISPAN), he said.

The collaborative model helps banks future-proof their technological pursuits since, after all, there’s no telling where the banking industry will be headed through the next decade and a half, he said.

By engaging with platforms, FIs can position themselves for growth in embedded banking, real-time data exchange and especially real-time payments. Roughly a third of neobanks surveyed said that partnering with FinTechs reduces the time to market of deploying new products.

See more: APIs to Drive Banking-as-a-Service Growth in 2022

Naish noted that many FIs have spinoffs — purely digital operations that cater to younger, more technology-savvy consumers. Through the partnership model, banks and digital upstarts can adeptly manage new offerings into those nascent markets and enable those new experiences.

The danger lies with the prospect of regulating to the point that innovation is stifled. Against that backdrop, he recommended a “stepwise increase in the modernization of regulations.”

Measures such as the EU’s General Data Protection Regulation (GDPR) help modernize consumer protections and likely will not have to be revamped for several years, he said. Bringing those systems closer spurs innovation — and makes it easier to manage compliance issues.

Read also: Convenience Driving Consumers to Open Banking

Looking ahead, Naish said that the adoption of APIs will only accelerate.

“To say that they will have a lasting impact is an understatement,” he said, “because APIs bring to the forefront the agility of certain networks across industries and lay the groundwork for innovation.”