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Application Programming Interfaces

Avoid heavy replacement costs by leveraging legacy core systems.

By Sageworks

One challenge for banks and credit unions looking to compete with fintech offerings is their reliance on legacy core banking systems housing the data to manage customer accounts and run the institution. Layering new digital offerings on legacy technology and infrastructure can frustrate timelines and budgets, yet replacing core systems is even more complex and expensive. As a result, many institutions struggle with wanting to innovate while maintaining the “if it’s not broke, don’t fix it” mindset.

Overcoming Barriers

Industry experts have said for years that legacy systems are one of the biggest barriers to providing the digital experiences that upstart technology-based companies are offering. The siloed structure of data and business lines housed in the legacy systems stymie a 360-degree view of the customer that is needed in order to provide personalized services. Meanwhile, layers of applications built on top of the legacy systems make it difficult to pivot to new approaches or tech trends.

Increasingly, however, financial institutions are finding they can utilize application programming interfaces to make the most of their legacy core systems while still providing the product and service offerings their clients and prospects want and expect.

APIs enable the flow of data and analytics between the institution’s current technology infrastructure and other systems, allowing banks and credit unions to supercharge their ability to share insight efficiently. APIs are instructions for how software applications should interact, and they operate behind the scenes of customer- and employee-facing applications.

Types of APIs

Tapping into the power of APIs can help financial institutions make the most of their core systems while at the same time accessing data or insights that help them make better decisions and grow profitably. There are three types of APIs, and each can help financial institutions bridge data gaps, eliminate costly duplicate data entry and create new functionality for the financial institution’s customers.

Private APIs. Many banks already use private or internal APIs to connect siloed systems of data or to create customer-facing applications. These APIs are usually developed in-house or by the core system provider so that various internal solutions communicate with each other.

Partner APIs. A common, everyday example of a partner API is how the restaurant-review site Yelp uses Google Maps’ API to help restaurant seekers find any spot under consideration without having to exit the Yelp app and open the Google Maps app. Banks and credit unions also utilize partner APIs to expand product lines and improve efficiency. For example, through an API partnership, a bank using one solution to spread and make decisions on loan applications can automatically create loan documents using another company’s solution — all without switching between the applications. This type of partnership advances the ability of financial institutions to automate the entire life of a loan.

Kevin Schiffman, vice president of credit administration at First Bank & Trust, headquartered in New Orleans, La., is an advocate for the impact this kind of API integration has made in the credit risk department at the bank. First Bank & Trust is currently a user of Sageworks Banking Platform, utilizing it to automate its lending, credit risk and portfolio risk processes. The Credit Report Access feature of the platform uses API technology to import real-time credit information from major credit bureaus (Equifax, Experian and Transunion) throughout the life of the loan to identify and measure potential risk.

“Previously, the customer’s financial information that had already been entered in one system required re-entry into the pulling system,” Schiffman says, “and then we would manually pull the credit report as well. Entering the information multiple times meant the possibility for error and took up valuable time of professionals in the credit department that could be used for analysis. With the integration between systems, we are no longer required to manually read reports, calculate payments and enter the information into the spreading system. Sageworks has provided us a single point of entry leading to significant time-savings and reduced possibility for error.”

This experience has led First Bank & Trust to volunteer to act as a beta tester for other new API integrations with Sageworks, and they look forward to the efficiency that can be added down the road by solutions for electronic signature and other applications.

Open APIs. To leverage the exploding community of application developers and accelerate innovation, some entities will make their business data or functionality available to third parties via open APIs — even if they have no formal relationship. Late last year, for example, Sageworks introduced its API Network. The API Network fosters the ability of others to leverage the company’s data, including anonymized historical loan-level data and industry data, for model development and internal analysis — even if the institution, research firm or accounting firm isn’t utilizing Sageworks’ solutions. It also will enable clients to more easily connect to third-party innovative technology, such as the Salesforce.com inc.’s customer relationship management platform.

Ultimately, APIs can provide financial institutions with the flexibility to plan and achieve technology upgrades without a wholesale scrapping of the legacy core system. Schiffman went on to add that API integrations and open data flow are critical for financial institutions as the industry continues to evolve. “Everybody is selling solutions to improve various efficiencies through technology, but with more solutions you have the opportunity for disparate systems that are not interoperable,” Schiffman said. “We’re able to use Sageworks as a central repository that pulls in and pushes data out to the places we need to use it. API integrations are allowing an elegant, easy way to move and effectively use data. It’s a no brainer.”

In a recent article on data sharing and open banking, McKinsey consultant Laura Brodsky and associate partner Liz Oakes noted that banks and credit unions “hold the keys to the vault in terms of rich transaction data as well as trusted client relationships.” However, the trusted agent status must be exploited now in order to avoid losing business to new entrants, the consultants said. APIs may provide financial institutions with the means to enhance the delivery of financial services while capitalizing on that trusted agent status. 

For more information, visit https://www.sageworks.com/banking/api-network/.

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