A key responsibility of my role is investigating how to create innovative solutions for existing or prospective customers. I am not unique in this endeavor. Organizations across all industries understand that innovation is the key to success, especially when it comes to markets that are seeing an ever-growing influx of digital challengers. 

Financial services is a good example of an industry dominated by long-established firms with traditional technology at the core. Even if there is a desire to evolve systems, the process to rip and replace can be both cumbersome and costly. Technology also only gets firms as far as the potential of an idea. 

Ideas are potential solutions, and solutions are business drivers. The key problem for firms today, however, is that technology is typically prioritized over innovation, which puts the cart before the horse. Two complementary factors are beginning to change this mindset: the advent of business-oriented APIs and an increasing culture of collaboration. 

Changing the game with APIs
Creating a system once involved a full stack developer starting from scratch with a software development kit. They would sit close to the code and would add to the source every time a new function or feature was required. With the arrival of the world of web services, there was a decoupling of sorts. WSDL was a way to expose a desired object, but in a web service. Instead of accessing C++, C#, or COBOL, it was possible to access an XML representation of the object, so it was still tightly coupled to the engineering, but the communication could be decoupled.

APIs allow a standard of communication that is not coupled to the object code and is more related to the business logic. I’ll describe the difference using a finance example: before APIs, a request might be ‘Get card ID’, for which there is object code. With an API the request is ‘I want to know all my current cards.’ Essentially, the request is the same, but instead of seeing it from an engineering perspective, it is now viewed from a business one. APIs that are business-oriented completely changed the game and are now arguably the most valuable technology software providers have in their arsenal. 

Making technology address the business problem
For traditional firms, innovation must be decoupled from core systems so that solutions can be delivered at pace and in an agile way. Fintech is the answer to this problem for the financial services industry, but there are similar “techs” in other industries, such as regtech and healthtech. While some firms fall into the challenger camp, many now seek collaboration with established firms. 

The challenge for today’s organizations is to address the immediate demands of customers in the digital age. It is here that collaboration with agile tech partners is a must. 

These agile firms arose in the digital age and were built with service-oriented architecture (SOA) and APIs. Together, these two innovations enable continuous delivery, meaning the building and deployment of solutions happens concurrently and can easily be reversed to reduce overall risk. Further to this, the push toward continuous delivery and APIs brought about microservices, which enable a further decoupling where every feature and application can be delivered and upgraded independently. 

Netflix is a good example of how to deploy microservices well. Every feature – from authentication to subscription management – is delivered as a microservice, but the core service comes from the same place. This is the way firms can scale and innovate, without risk to the core offering. Netflix was built with modern technology and architectural modularity, so there was no requirement for decoupling. Organizations without this privilege must bring in innovation from the outside, which is where collaboration becomes essential. 

No innovation without collaboration
Identifying the opportunities for new solutions at pace requires drawing on multiple disciplines and expertise across an organization. Siloed teams focusing on their own areas of business with little collaboration and communication between departments makes this difficult. Banks are now seeing the benefits of not only working with more agile software providers or fintechs from a business outcome perspective, but also the benefits of a more diverse, cross-functional culture.  

Take core banking offerings as an example. Banks operate across a number of markets, such as loans and payments, which are increasingly under threat from challengers. They need to innovate and bring compelling solutions to market quickly to stay competitive. Older technology systems and sometimes culture can hinder rapid development. Collaborating with a technology partner that can plug into core systems via APIs and develop solutions can help overcome these challenges. Furthermore, a fintech that takes a holistic view of a customer’s offerings is able to identify opportunities more readily. For example, a statistical model developed in a payments context may turn out to be ineffective, but applying the same model to loan data may create a viable use case. Without a cross-functional team to identify this possibility, the opportunity to pivot and innovate would go undiscovered. 

Legacy systems often boast enormous power, stability and scale, and still underpin much of the financial services world. Opening them up to a world of innovation via APIs and collaboration unlocks their potential in today’s digital-first era.