3 Ways to Improve Your Efficiency Ratio with API Management

Efficiency and productivity are two crucial components of a successful business. Increasing productivity and efficiency are still priorities for banks today. In fact, efficiency ratio is a key profitability indicator for many banks.

What’s the Target Efficiency Ratio?

According to Investopedia, a bank’s efficiency ratio is calculated by dividing its non-interest expenses by its revenue. This ratio illustrates how well a bank’s management team controls the overhead, or "back office" expenses. An efficiency ratio of 50% or lower is ideal.

But keeping the efficiency ratio low is a challenge for all banks, big and small. This article points out that “the aggregate efficiency ratio for U.S. banks was 63.2% in the fourth quarter of 2021, up from 60.4% in the linked quarter and 61.6% in the year-ago period.” 

Did you know new employee recruitment, onboarding and training can cost anywhere between $25,000 and $60,000? Cha-ching! One of the easiest ways to manage overhead costs (like full-time employees), boost productivity and keep your efficiency ratio low is to invest in technology that allows you to streamline processes. 

How can a bank do that? By utilizing API management. 

API Management: 3 Ways to Improve Your Bank’s Efficiency Ratio

API management is a bank’s approach to operating APIs within its systems. You can learn all about API management in our recent blog post. Our goal in this article is to explain how managing this technology can reduce overhead costs in banking.

Digital Lending

Digital lending, a paperless tool that reduces manual data entry, enables your employees to do their best and most effective work, which is typically building and maintaining relationships with your key customers. Keeping employees from wasting time pushing paper or re-keying data into disconnected systems is one way a bank can improve its efficiency ratio. 

When banking systems cannot connect to the bank’s core, this results in the need to re-enter data multiple times, and let’s face it—no one likes to do that! Here’s an example of how this plays out for a bank and its customer.

Imagine walking into a bank to apply for a loan. 

1. The loan officer asks you to fill out an online form. 

2. You’re then asked to fill out another form for identity verification purposes, which requests the exact same information as the online form. But you’re not done! 

3. Next, you’re asked to provide asset reports, which require updated versions multiple times throughout the loan process. Then, guess what? These reports include the same information you’ve already provided. By the end of this process, you’ll have entered the same information not once, not twice, but multiple times. The data entry doesn’t end with the customer, though. 

4. After you’ve filled out all this information, an employee at the bank must manually transfer all that data to the bank’s lending system and potentially even the core.

API management streamlines the process by taking a single record of information and propagating it to all the systems that need it to process the loan. Plus, APIs enable the bank to book the loan directly to its core in real time, rather than re-keying or relying on batch processes. APIs allow an institution to connect systems and sync data. This means data can automatically transfer from the online portal, where a user enters their information, directly to the bank’s key systems, reducing overhead and boosting productivity.

Integration Layer

The integration layer allows banks to capitalize on real-time accurate data from multiple systems. APIs are only as good as the systems they connect. An integration layer allows a bank to customize the systems and applications it uses to streamline a process and provide the digital banking features customers demand. With the integration layer, a bank can easily introduce new and different solutions or products as they come to market. 

Read and Write Data to Your Core

Before APIs, it was difficult for a fintech company to obtain access to a bank’s core. Now, you can leverage and integrate with fintech partners through API management, reducing overhead costs.

With API management, banks can take control of their own records and systems, putting the bank in the driver’s seat. 

What this means is:

• Banks can use their data to sync systems,

• Have a 360° view of their customer, and

• Utilize that information to increase upsell and cross-sell opportunities to grow long-term relationships and revenue. 

This is a significant amount of leverage and power for a bank. With great power also comes great responsibility. It is critical to have a trusted partner with experience in core and key system integration security. If you’re searching for a way to cut overhead costs, you need to research API management partners who understand the banking industry as well as you do.

Learn more about our API expertise. Schedule an introductory meeting with C10 experts today.