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Move to intelligent banking by embracing open APIs - Microsoft Industry Blogs

In the early days of financial technology (fintech), there was a somewhat distant relationship between fintech startups and traditional banks. Some spoke of how fintechs were going to “disintermediate” banks. Some banks, in turn, promoted the idea that consumers should cast a wary eye towards these less-regulated upstarts. Those notions have evolved, and integration of fintechs and traditional banks through open APIs is accelerating the digital transformation of the banking industry.

In the last few years, banks and fintechs realized that there are benefits of partnership, cooperation and collaboration:

Fintechs gain built-in customer bases. Banks access the innovative digital products their customers now demand. Overcoming the inertia of legacy systems

For banks managing legacy systems—sometimes older and built for an analog age—it can be challenging to innovate and develop the digital payments products today’s customers expect. In fact, a complex legacy IT environment is possibly the greatest barrier to a bank’s ability to drive digital transformation. The cost of replacing and updating those systems are the most significant obstacles to adopting new technologies. That’s where fintechs come in.

Open APIs and open banking

Thankfully, there are many ways for banks to quickly roll out innovative digital offerings without the costly—and potentially risky—replacement of core IT systems. One approach that is gaining popularity is open banking, which includes using application programming interfaces (APIs) to connect banks’ systems with innovative third-party digital products offered by fintech companies. Regulatory statutes, such as the Payment Services Directive 2 (PSD2) in Europe, are driving adoption of open banking, and consumer demand is also spurring growth in other parts of the world.

Banks that jump ahead with open banking initiatives will enjoy a first-mover advantage, according to a recent study in the MIT Technology...

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