IBM API Connect. Making Open Banking easier to integrate

Open Banking is actively transforming the financial sector worldwide, and despite the war, Ukraine is also taking confident steps in this direction. In August 2023, the National Bank of Ukraine approved the Open Banking Concept, which harmonises Ukrainian legislation with European standards, namely the PSD2 Directive.

The European Union's PSD2 Directive, which came into force in 2019, defined a new stage in developing payment services by promoting competition, customer protection and innovation. It was a follow-up to PSD1 (2007), which standardised payment rules and facilitated the creation of SEPA.

PSD2 opened up access to bank accounts to third-party developers (TPPs) via APIs (application programming interfaces), stimulating the development of products such as financial planners and multi-bank accounting systems.

In Ukraine, adaptation to PSD2 began with introducing the Law on Payment Services in 2022, and the Open Banking Concept is due to come into force in August 2025. It provides for the free exchange of financial information between banks, fintech companies and other providers. Third-party providers will be able to access consumers' financial data via APIs, allowing customers to control who has access to their finances.

As a result, financial institutions need to choose an API-centric solution that ensures compliance with the NBU's requirements and helps them effectively implement Open Banking while minimising risk.

Effective implementation of Open Banking requires modern API tools. IBM API Connect is one such tool that helps banks manage, secure and monitor APIs, simplifying service integration. This not only ensures compliance with new standards but also creates a convenient user experience that opens up new opportunities in financial services.

Importance of API integration in banking and key challenges

Integrating the Open Banking API requires banks to make significant changes, which come with some challenges. In particular:

• The technical complexity of API integration. Many banks operate on outdated IT systems that are not always compatible with modern APIs. This requires an infrastructure upgrade, significant financial investments, and time to transition to flexible architectures.
• Compliance with regulatory standards. It is important for Open Banking to comply with regulatory requirements such as PSD2. Banks must implement multi-factor authentication (MFA) and provide transparent access for third-party providers while maintaining data confidentiality.
• Security of customer data. Open architecture increases the risk of cyberattacks. Banks are faced with the need to integrate modern security protocols, such as OAuth 2.0, and set up a clear permission management system.
• Scalability of solutions. As the number of API requests grows, there is a need for high-performance and scalable platforms that can withstand the load and provide real-time data processing speed.
• Cultural and organisational changes. Transitioning to the Open Banking model requires adapting traditional business processes to new conditions, training employees and overcoming resistance to change.

Overcoming these challenges opens up opportunities for banks to create innovative financial services that meet the modern needs of their customers.

How IBM API Connect simplifies Open Banking API integration

IBM API Connect provides a platform for creating, managing and monitoring APIs that comply with today's PSD2 standards. The integrated API gateway provides secure API routing, data transformation and access control, and with easily integrated OAuth 2.0 and OpenID Connect security features, API Connect helps financial institutions ensure effective Open Banking API implementations.

What is IBM API Connect and why is it important for Open Banking?

IBM API Connect overview

IBM API Connect is a comprehensive API management solution for the entire API lifecycle. It provides an intuitive interface for creating, managing, securing, promoting and monetising APIs. The platform enables digital transformation in both on-premises and cloud environments, enabling businesses and their customers to build digital applications and innovate in real time.

IBM API Connect is also available as a service as a scalable, fully managed API management platform powered by Amazon Web Services (AWS).

Key benefits of IBM API Connect

• API Performance. API Assistant improves API efficiency and developer productivity.
• Project deployment speed. Increase integration project deployment speed by up to 8x.
• Optimise costs. Reduce API costs by up to 50%.

Recognition and ratings:

• IBM ranked #1 in 4 out of 6 use cases evaluated in the Gartner Critical Capabilities for API Management 2024 report.
• Recognised as a Leader in the Forrester Wave for API Management Software in Q3 2024.

This platform is ideal for organisations looking to improve data integration, accelerate innovation and reduce the cost of developing digital solutions.

PSD2 compliance

IBM API Connect is a perfect fit for PSD2 with its ability to create, manage, secure and monetise APIs. This platform enables banks and financial institutions to comply with PSD2's open banking provisions and secure access to bank data by third-party service providers (TPPs).

Here's how IBM API Connect supports PSD2 compliance:

1. Providing access through APIs. PSD2 requires banks to provide open APIs to third-party developers. IBM API Connect provides all the tools you need to create and publish APIs quickly and securely.
2. Data security. In line with the requirements of PSD2, particularly Strong Customer Authentication (SCA), IBM API Connect provides multiple layers of protection for customer data. The platform allows you to implement modern security protocols such as OAuth 2.0 and TLS to protect sensitive information.
3. API management. To ensure ongoing PSD2 compliance, IBM API Connect provides tools for monitoring, versioning and managing APIs. This enables financial institutions to easily update APIs to meet changing regulatory requirements.
4. Monetisation and analytics. PSD2 opens up new business models for banks. IBM API Connect helps monetise APIs, analyse third-party usage and optimise business strategies.
5. Scalability and accessibility. The platform is available both on-premises and in the cloud, giving financial institutions the flexibility to choose the most appropriate infrastructure.

IBM API Connect helps banks adapt quickly to open banking, ensuring their processes meet all PSD2 requirements and deliver a high-quality customer experience.

Support for microservices architecture

IBM API Connect provides integration with microservices architecture, which opens up new opportunities for creating flexible and scalable applications. This architecture allows you to allocate resources between different services, optimising performance and simplifying management. API Connect automates the creation, deployment and updating of APIs for each microservice, helping you develop and deploy new features faster.

The key benefits of using IBM API Connect in a microservices environment include:

• Flexible integration. Easily connect to external services and platforms such as databases, third-party APIs or cloud services.
• Effective API management. Centralised API management lets you quickly configure access, scale services, and ensure security.
• Support for modern protocols. Use standards such as REST, GraphQL or OpenAPI to ensure compatibility with different development tools.
• Improved performance. Optimise application performance with support for distributed loads and real-time request processing.

This feature is particularly important in the context of open banking and PSD2 compliance. The need to open APIs to third-party service providers requires a robust platform that can integrate multiple microservices while ensuring transparency and privacy. IBM API Connect not only facilitates integration but also provides monitoring, security and analytics tools that meet stringent regulatory standards.

As a result, IBM API Connect is becoming an essential tool for organisations looking to modernise their digital processes, ensure operational stability and implement innovative solutions to meet today's challenges.

How IBM API Connect simplifies Open Banking API integration

To effectively implement open banking, financial institutions need to find the right technology solution. IBM has a market-leading position in meeting API, Open Banking and PSD2 requirements. IBM API Connect provides a comprehensive platform for securing and managing business assets that have been proven in many of the world's largest financial institutions.

How IBM API Connect aligns with open banking:

• API Security. Highly secure access to critical assets such as payments and invoices.
• Developer onboarding. A self-service portal for developers and third parties to register for access to banking APIs.
• Analytics. Gain insight into API usage by third parties.
• API management. Manage access to APIs, including the ability to manage their lifecycle (deprecation, retirement, new versions, etc.).

IBM is delivering capabilities to meet the needs of Open Banking and PSD2. The product strategy is to implement technology standards such as OAuth and OpenID Connect and to provide integration with existing banking systems.

According to the specifications, there are three main streams:

1. TPP onboarding to register and obtain API credentials.
2. Execute payments using a two-step approach (intent registration and payment submission).
3. Receive payment submission status.

These flows rely on the OAuth and OpenID Connect specifications, for which API Connect provides world-class support. The IBM API Connect platform provides capabilities to support Open Banking and PSD2 requirements, with plans to develop additional functionality to enhance the user experience.

Benefits of using IBM API Connect in the financial sector

1. PSD2 compliance. IBM API Connect provides capabilities that enable financial institutions to create standardised and secure APIs that are fully PSD2 compliant. This includes support for OAuth 2.0 and OpenID Connect authentication protocols, enabling secure access to financial data for third-party service providers (TPPs).
2. Improved collaboration with TPPs. The platform facilitates easy API integration with TPPs through pre-built templates, an intuitive interface and built-in testing tools. This reduces the time to on-board new partners and provides quick access to financial services such as account management, payments and transaction analysis.
3. Automate API processes. API Connect integrates with CI/CD pipelines to automate API updates and version management. This enables banks to implement new features faster, test them in a secure environment and ensure workflow stability during updates.
4. High performance. The platform ensures low latency in the processing of API requests, ensuring stability and uninterrupted operation of services, even at peak times. This is particularly important for banks, where the speed and reliability of data processing have a direct impact on customer satisfaction.
5. Scalability and flexibility. With IBM API Connect, you can scale your infrastructure to meet growing business needs. The platform supports cloud, on-premises and hybrid environments, providing flexible resource management without sacrificing performance.
6. Increased competitiveness. By implementing IBM API Connect, banks can respond more quickly to customer needs, create innovative products and improve collaboration with fintech companies. As a result, financial institutions can enhance their reputation and strengthen their market position.

As a result, IBM API Connect is a strategic tool for financial institutions that want to meet the demands of the modern marketplace by ensuring the innovation, reliability and efficiency of their services.

How IBM API Connect helps implement Open Banking API in Ukraine

• Regulatory compliance. IBM API Connect helps banks ensure compliance with regulations related to the implementation of Open Banking in Ukraine. This includes support for PSD2 standards, including OAuth 2.0, OpenID Connect and privacy mechanisms. The platform ensures the creation and management of APIs under the requirements of the National Bank of Ukraine, in particular security and access to bank data for third-party service providers (TPPs).
• Building a secure infrastructure. IBM API Connect provides a powerful set of tools for building a secure and scalable open banking infrastructure:

1. Integration with authentication systems. Built-in multi-factor authentication mechanisms ensure secure connection and data transmission.
2. Data encryption. End-to-end encryption of API requests and responses is provided, ensuring the confidentiality of user information.
3. Protection from cyber threats. The platform uses advanced security tools, including request monitoring, access restriction and suspicious activity analysis.

• Support for rapid integration with TPP. IBM API Connect simplifies the process of integrating banking services with TPP through pre-built API templates and intuitive management tools. This helps banks reduce development costs and accelerate time to market for new services.
• Flexibility and scalability. The platform ensures that APIs adapt to the growing needs of the business and regulators. It supports both on-premises and cloud environments, allowing banks to quickly scale their infrastructure to handle high volumes of requests during peak periods.
• Support the development of the fintech ecosystem. By integrating with the Open Banking API, banks can expand their collaboration with fintech companies and encourage the creation of innovative services for customers, such as personalised financial planners, mobile payments or multi-bank account management systems.

In this way, IBM API Connect serves as a strategic platform for banks implementing Open Banking in Ukraine, promoting innovation, efficiency and security.

Real-world examples of IBM API Connect in action

Case Study: Axis Bank implements IBM API Connect Suite to transform digital banking for clients

The challenge

Banking transformation is no longer limited to the shift from traditional to digital methods. To increase revenues, banks need to focus their efforts on improving the customer experience.

A prime example of this is the introduction of the Unified Payment Interface (UPI) in India, made possible through the use of APIs. UPI, a real-world payment system, has revolutionised financial transactions in the country by enabling seamless integration with applications and services.

Axis Bank Solution

Axis Bank, the third largest private sector bank in India, was looking for a robust and scalable API management solution to provide a global banking experience to its customers. With the IBM API Connect platform, the bank has significantly reduced onboarding time for enterprise customers by providing them with a fully digital experience.

The results

The close collaboration between Axis Bank and IBM made a significant difference. Customers were able to register quickly online and monitor API performance in real-time. The bank provided simplified API documentation, which helped reduce response time to customer requests.

The introduction of automated query-handling systems such as chatbots also improved customer service, resulting in increased customer satisfaction and loyalty.

Axis Bank's partnership with IBM proved successful as the IBM technology stack ensured the smooth operation of the bank's infrastructure, which contributed to the efficiency of customer service. By reducing time to connect to the enterprise and increasing operational efficiency, Axis Bank was able to strengthen its market position by offering innovative financial services.

This case study illustrates the importance of API integration in today's banking environment and how technology can improve the customer experience and meet customer needs.

How to get started with IBM API Connect to implement Open Banking

To get started with IBM API Connect, you need to follow these basic steps:

1. Select a deployment option. Choose whether to deploy the Connect API in the cloud (IBM Bluemix) or on local servers.
2. Create organisations. You can create Vendor and Developer organisations in API Connect. Each organisation can have multiple users working with the API.
3. Define communities. Group development organisations into communities to restrict access to APIs. This allows you to control which APIs different groups of users can see.
4. Create directories. Create test and production directories associated with specific developer ports.
5. Publish APIs. Create an API and include it in a product published to a developer portal.
6. Define policies. Set policies for security, logging, request routing and data transformation.

By following these simple steps, you can efficiently create, manage and publish APIs with high levels of security, performance and compliance, ensuring a successful Open Banking implementation.

Conclusion

IBM API Connect is a powerful solution for financial institutions looking to implement Open Banking APIs. The platform delivers the high security, high performance and regulatory compliance that are critical to banks. It enables the creation, management and monitoring of APIs, providing reliability and flexibility when introducing new financial services. By integrating with existing systems, IBM API Connect helps banks develop innovative solutions that help them compete effectively in the financial services marketplace.

Use IBM API Connect to take a step towards your bank's digital future! Solidity's experts will help you: info@solidity.com.ua