API-enabled architecture: 3 approaches to IT modernization for banks

The introduction of the Second Payments Services Directive (PSD2) in 2019 marked a significant shift in banking regulations across Europe, requiring banks to allow third-party access to customer account information and payment capabilities through standardized APIs. While the directive aimed for uniformity, banks often created slightly different APIs, leading fintech companies to integrate with each bank individually. This regulatory change has accelerated the adoption of open banking globally, with 108 countries now following suit, and has prompted banks to modernize their IT infrastructure. Banks have pursued various strategies, such as lift and shift, refactoring, and middleware solutions, to update their legacy systems and meet digital demands. These efforts have enabled them to manage customer impacts of COVID-19, expand product offerings, reach new customer segments, and comply with emerging regulatory requirements. The modernization often involves adopting cloud and API capabilities, with the goal of building a microservices-based architecture that enhances performance and observability. Monitoring API-enabled architectures is crucial for banks to capitalize on the estimated $25 billion API market, focusing on metrics like API adoption rates, usage, change requests, and uptime to improve customer experience and engagement.