What CUs Need to Understand About APIs

Moving to an open core infrastructure requires strategic planning for credit unions and some help in determining the critical ingredients, such as application programming interfaces, for a successful system moving forward.

Mark Shaw, managing director in the financial services group of performance consulting at Chicago-based Crowe LLP, offered some guidance for credit unions considering conversion to an open core system and how the Credit Union Financial Exchange standard can help achieve that goal.

According to Crowe, its banking performance consulting team helps credit unions and banks streamline operations, reduce costs, improve revenues, and elevate customer service by improving the effectiveness of existing processes and managing transitions to new technology.

“Crowe helps clients more quickly and confidently plan for, select and implement new technologies and vendor systems which meet their future business needs, based on our knowledge of industry trends and vendors, proven methodologies, and system conversion experience,” Shaw said. Benefits include:

• Better technology preparation to meet their business needs in the future.
• Obtaining better value from vendor relationships.
• Helping financial institutions manage a smooth conversion to new technologies.

Crowe consulting’s support to clients evaluating core vendors and their environments includes providing insight of a software developer’s technical set-up (architecture), design and configuration of the vendor’s application and its ability to support application programming interfaces.

Shaw explained why APIs are so significant as they relate to credit unions and other financial institutions. “APIs have allowed software developers to provide software ‘add-ons’ that deliver specific functions not available in a core system application or within peripheral systems to the core application.” Additionally, apps can usually improve the member experience with supplementary information.

Core providers must maintain generic application functions that support an extensive base of client needs, Shaw pointed out. “It is not possible to develop one-off capabilities at the request of a single credit union or even a small number of requestors. While the prospect of letting go of major functions is highly remote, core service providers have come to embrace the benefit of satisfied customers through strategic partners and through the use of open systems architecture that relies upon APIs.”

Shaw noted this evolution of the core system business model has led to system providers bringing newly architected core systems to market based upon an enterprise service bus framework with a heavy reliance on application modules that simply plug-in to the core system. “While legacy core system providers have embraced open architecture and the use of APIs, many are still in the process of developing their API layers.” Accordingly, some credit unions are evaluating core vendors primarily on the basis of the business model, architecture and maturity with APIs.

There are many ways apps’ developers can integrate with core systems and ancillary processing platforms Shaw suggested. Most core systems have an API. “APIs in various forms have been in place for many years with the initial versions often in a proprietary format with licensing requirements to protect the intellectual property and to provide a source of revenue for the core vendors.”

Shaw said leveraging what is referred to as an enterprise service bus architecture, the CUFX standard, which operates as a common middleware sitting between the core system and the external application layer, was implemented to allow vendors to interface their application(s) to the core vendor’s ESB conforming to the CUFX standard.

CUFX as a systems integration standard connects applications to core processing systems and provides support for apps such as online and mobile banking transactions, new member account opening, personal finance management, activity management and investments, Shaw noted.

“Use of the ESB architecture with CUFX standards will ensure that digital banking and other banking applications for Credit Unions can connect in a uniform manner and that digital banking application level changes can be made without disruption to core or peripheral processing systems,” Shaw said. “Accordingly, core vendors will be able to maintain a ‘core agnostic,’ multi tenancy environment allowing for a highly stable and ‘restful’ interface.”