With the advent of open APIs, new business opportunities are being created at the core of banking services. The changing needs of customers are driving banks to offer better services and superior experience. Banking is redefining itself by better utilizing data, entering partnerships for multiple digital channels, payment mechanisms, lending initiatives, and wealth management leading to a digital financial ecosystem. Additionally, with the PSD2 directives deadline looming, banks need to ensure 24/7 availability of APIs to third-party providers. Banks must ensure interoperability and align themselves with multiple players of the open banking ecosystem. All financial institutions will now need to adhere to Open Banking Conformance certification process to comply with PSD2 and the ultimate beneficiary of such an ecosystem will be end users.
The Asian banker revealed that “one of the top banks in India implemented an API-based solution for its customer. The solution aimed to reduce inefficiencies in the trade finance and financial supply chain, by providing a cost-effective and efficient means of automating bill discounting”.
What exactly are open APIs?
Open APIs are the interface between applications owned by multiple organizations. By leveraging open APIs, there is secure mode of information sharing or access to specific features of an application to offer multiple banking services. For instance, India’s UPI-based services to an extent are based on open APIs. According to BBVA that has launched open banking services recently, “the APIs could also provide BBVA with new sources for customer acquisitions and loan originations. For example, through the loans API, third parties can inform customers when they have access to a pre-approved loan from BBVA. Additionally, the API can be integrated into the checkout process to allow customers to finance their purchase of a third party product or service at the point of sale with a BBVA loan.”
How are open APIs transforming the banking experience?
Open APIs are fundamentally transforming the banking experience for end users, whether it is individuals or global corporates. The adoption of open APIs is growing rapidly and banks must enable comprehensive, secure, real-time information sharing using open APIs. For example, financial institutions offering all kinds of banking services mentioned below use open APIs.
- Allowing corporates to initiate payments directly via ERP without coming to any bank provided systems
- PSD2 allows third parties to initiate payment requests or payments basis pre-authorization and also extends to other banking services
- Reducing dependency on card and card interchange fees
- Faster cross border settlements
It requires the banking application to pull and push various kinds of information. To offer such services a bank’s back-end and middleware systems must be prepared to support open APIs extensively and this involves complex integrations. For banks to design, build, and operate such vast and complex financial ecosystems based on open APIs, they need to be backed by robust quality assurance processes.
Challenges due to APIs:
- As multiple applications and parties are involved in API-based transactions, multi-stage commits and rollbacks have to be executed to perfection.
- Real-time monitoring has to be performed to plug any un-envisaged process gaps. Insufficient discussion and debate on transaction rollback procedures and error handling have led to banks left with footing a large bill—sandwiched between clients and third-party payment initiators.
- Points of failure can be external to banks and unlike credit cards, the traceability of transactions will be more painstaking and difficult to establish. With no interchange fees to create validation infrastructure, banks must not believe that the risks are similar to credit cards. Security protocols and authentication of third parties will gain prominence.
API testing makes FinTech innovation a reality
When it comes to open API testing, banks will need to ensure integrations are performed and tested in the most extensive manner possible. During API testing, banks primarily will need to validate the data response and behavior of API requests. They will require design and test APIs aligned with critical business logic and processes. With usage of APIs, banks need to accept the input data in the form of structured request and provide responses. Banks can automate most parts of the API testing such as functional testing, generation of dynamic data, extensive regression testing, test scenarios covering the complete ecosystem, performance, ad hoc scenarios, and robust security testing.
A Markets and Markets research points out that “The global API testing market size is expected to grow from USD 447.4 Million in 2017 to USD 1,099.1 Million by 2022, at a Compound Annual Growth Rate (CAGR) of 19.69% during the forecast period. In the API testing market, the BFSI vertical is expected to grow at the highest rate during the forecast period. The open API movement in the banking industry which exposes a wide range of banking APIs with other businesses is driving the API test market.” So this points to the growing importance of the practice and the need to invest in automated API testing.
Open API testing at banks can be vast and complex. Banks must actively adopt open APIs to stay at the forefront of FinTech innovation. To achieve this, banks apart from having collaboration and partnerships, need to be backed by robust back-end systems that deliver in tandem with open APIs. To achieve this, banks will need highly automated testing and QA strategy. Tenjin is a next-gen test automation suite tailored-made to meet highly evolving QA requirements of banks. Tenjin features a core engine that seamlessly automates a bank’s open APIs testing. To know more, write to us at firstname.lastname@example.org.