The rapid increase of API integrations has been a significant challenge for banks for some time. However, the urgency to find a solution has grown due to ongoing modernisation efforts and growing open banking regulations.
A well-defined integration strategy is now essential for banks, which could otherwise be facing an approaching API tsunami.
“The number of third-party integrations that banks might undertake each year is set to rise from around 15 in 2024 to 35 in 2030. We also expect larger banks, or those deeply involved in digital transformation, to have to deal with even higher integration rates,” shares Pieter De Wet, business development lead at FutureBank. “Banks are aware of the approaching API integration tsunami, but while there’s lots of talk, there is still very little action.”
Global open banking push
The drive for API integration is not just about embracing new technology. Global regulatory initiatives aimed at enabling fintech competition and increased innovation through open banking are gaining momentum.
While UK banks have been sharing APIs since the arrival of PSD2 in 2018, the US’s Consumer Financial Protection Bureau (CFPB) will require banks to share customer data with authorised third parties, starting in 2026.
In South Africa, the final regulatory framework from the Financial Sector Conduct Authority (FSCA) is still eagerly awaited, although more detail has been given with the publication of an updated Draft Position Paper on Open Finance in March last year.
The complexity of legacy systems
A significant hurdle banks face when adopting new APIs is their reliance on outdated legacy cores. According to IDC research in a report commissioned by ThoughtMachine, nearly 75% of global banks still operate on these old platforms.
This dependency on legacy infrastructure hampers their ability to scale API integrations quickly and efficiently.
“When unpacking the technical challenges, IT leaders must take into consideration what’s coming down the line. In the next two years, the pace of API integrations will accelerate as banks adopt AI, advanced analytics, and customer experience tools so they can meet the growing consumer expectations and stay ahead of the competition.
“But by 2030 things will become even more complex as banks have to manage vast ecosystems of integrations, spanning across many competencies including security, compliance, and customer engagement,” De Wet warns.
The struggle to scale and innovate
The sheer volume of API integrations presents a growing operational challenge.
“As technology providers offload responsibility for system integration and augmentation, the burden will increasingly fall on the banks’ shoulders. This will inevitably lead to a steeper learning curve for teams, increased risks, and a greater operational burden. The net result is that banks may soon find themselves spending more time managing these integrations than actually innovating, which undermines the very purpose of the integration efforts,” explains Lorén Rose, Global Kinetic COO.
Moreover, Rose says a lack of experienced development teams can lead to failures in anticipating the long-term implications of API integration during the design phase. For instance, simple oversights, such as not considering a correlation ID to track a transaction across multiple partners, can create significant challenges at run phase. As integrations grow, banks risk developing a “spaghetti” ecosystem: A complex, inefficient, and fragile infrastructure that becomes increasingly difficult to maintain and scale.
This, in turn, diverts resources toward maintenance and support, ultimately stalling innovation.
“Banks today face a key challenge: Whether to meet market demand by developing bespoke technology solutions or integrating off-the-shelf products. While third-party solutions can accelerate time to market, they often introduce integration complexities and may not fully support long-term scalability or customisation needs. To mitigate the risks of fragile or tightly coupled integrations, banks can benefit from partnering with a trusted systems integrator or integration platform provider.
“Those seeking to retain intellectual property may opt for in-house development; however, this approach typically results in longer time to market, giving competitors a strategic advantage,” Rose shares.
Building versus buying: The hybrid approach
To effectively manage this growing complexity, many banks are opting for a hybrid “build-buy” approach. This strategy allows banks to capitalise on the time-to-market advantages of off-the-shelf solutions while retaining the flexibility to customise and differentiate their offerings.
Banks are also leveraging cloud middleware to facilitate seamless integration and scalability of their API ecosystems. API platforms offer banks an integration layer that has either pre-built adapters or are built in such a way that they can fast track their modernisation digitisation process. Providing a centralised platform for data exchange between different systems and applications, allows banks to manage API integrations more efficiently.
“Banks should seek solutions that abstract the complexities of multiple integrations by consolidating core functionalities — such as payments, cards, core banking operations, customer data, and compliance — into a unified solution. By providing a centralised framework, these platforms simplify the API landscape, enhance operational efficiency, and ensure seamless scalability,” says Rose.
Given the complexity of API integrations, Rose also warns that banks shouldn’t underestimate the importance of a strong operational foundation to support their API ecosystem. She also says adopting modern software architectures, such as microservices and event-driven systems, can help banks to scale efficiently and reduce the risks associated with rapid integration.
The road to API scalability lies in a hybrid approach
The next few years will be critical for banks as they confront the rapidly growing demand for API integrations. The choice between building custom integrations or relying on third-party solutions is not a simple one, but by adopting a hybrid approach, banks can better navigate the complexities of the modern financial landscape.
“Ultimately, banks that can scale their API integrations efficiently will be better positioned to respond to market changes, deliver superior customer experiences, and stay ahead of competitors. However, failure to act swiftly could lead to missed opportunities and operational bottlenecks that stifle innovation. The clock is ticking, and those who fail to prepare for the API integration tsunami risk being left behind,” De Wet says.