Gone are the days when – for customers – banking meant stepping into a physical branch with customer service representatives physically present. For today’s customers, visiting the bank means tapping the Banking app, opening the customer portal, log in to digital assistant. In this age when physical banks are paving the way for digital bank – channels, payments, wallet – fintech start-ups and large tech companies (Amazon, Google, Apple, Alipay) are redefining customer experience and have started claiming a share of Financial services market.
Average assets held by one of the top ten banks of the world is $ 2.5 trillion which is more than the GDP of France (1). But the overall investment in Fintech companies has reached $30.8 B, up from $1.8 B in 2011. Some of the banks have invested in financial technology themselves (2). Even there is competition for banks from large tech companies (Apple, Amazon, Google, Alibaba) (3). Finally, regulatory changes are mandating banks to open their information for better service to customers (4).
The question is how traditional banks can keep pace with this competition? The answer is APIs – employ API’s to manifest existing services, processes, assets and be a participator in a networked financial ecosystem and still make use of their strength of customer base.
Three things enabled by API can make a traditional bank continue to be a financial powerhouse in this new economy:
A. Enrich customer experience
For new age customers, the journey of customers’ needs to be extended from current small, “bank-only” centred customer journeys. For example, for auto-finance customer journey need extension from just “financing a car” to the customer’s need is to “find” the “right” car at “reasonable price” and “look for warranty”. In some cases, each of these elements come from a different source.
This requires the bank building a larger ecosystem to connect the sellers, other service providers, the bank and is possible only through an open architecture with API’s to expose the offering of participants. For the bank, this even means exploring information related to financing offers that are needed to contribute create value for the customer and provide them in real-time through API’s.
Example – Commonwealth bank of Australia has created an augmented-reality app for users. The app allows users to place the camera at a property and see the current price and sales history of the property. The app also provides a mortgage calculator and other financial tools and can help to connect with realtors nearby. Through APIs, the bank has created a connected journey of the customer to look-up the price, calculate the mortgage, connect with the realtor and apply for a loan (5), (6)
B. Extend offering of products and services
In the quest for high-value scenarios for the customers, banks eventually look for options to extend the core banking offering by discovering additional services and products along the journey. For example – analysis of cash flow, management of accounts receivable are areas to build new services beyond the core services offered by the bank today. This – over a period of time – helps the bank emerges as an aggregator of products and services. Experience and information APIs don’t just make the aggregation possible, they also make the aggregation of products and services dynamic, real-time, personalized.
Example – under Open Banking directives, banks are publishing APIs for 3rd party developers, partners to develop additional services on regulated access to existing products and services (Bank of America developer portal, Citibank developer sandbox, BBVA API marketplace, Capital One dev Exchange) (7), (8). Some banks and financial service providers are aggregating APIs from multiple financial service providers into a single API (Figo).
APIs make the bank create a value network across industries and a wide offering portfolio. It helps to bank protecting their business against disintermediation from the tech giants and the Fintech start-up.
APIs make the bank create a value network across industries and a wide offering portfolio. It helps to bank protecting their business against disintermediation from the tech giants and the Fintech start-up.
C. Reposition own assets
Banks do have and are generating tons of data. For example – HSBC has 39 million (9), Barclays – 24 million (10), Capital One – 45 million (11) customer accounts. Banks possess not just demography data, and spending pattern of the customers, but also the journey of customers in digital channels provide a rich set of data. APIs can unlock the real value of this asset by helping to create a network effect faster.
For example – experience APIs externalize information about banking products and services in the context of the customer journey. More interesting is the fact that as experience APIs are accessed, they can help track the journey of the customer further. And this rich customer footprint helps to create further “valuable” set of APIs. The APIs not only help in recommending and selling bank’s products and services but also help in selling products and services of ecosystem participants – thereby creating a new revenue stream by monetization of APIs.
The solutions and ecosystems of banks that enable customer experience move as higher pace (weekly sprints and continuous deployments) than the back-end legacy systems and solutions (banks still run mainframe for many business functions) which move in quarterly or monthly rhythm. APIs sit in the middle or in the front to synchronize the two modes of IT so that the legacy asset is not a constraint for the digital face of the new-age bank.
Conclusion
APIs need to be a part of the business strategy of new-age banks. Even though API adoption is higher for payment-centric customer interactions, the bank’s API strategy needs to be holistic to consider the entire value chain of the customer. API Strategy will reposition a bank’s assets towards new and potential offering, will broaden the offering with new products & services, and finally deepen the experience with customers. In this age of networked financial ecosystems, API has the potential to multiply the return on investments for new products and services and make the traditional bank an agile, new-age, digital player.
References:
1 – https://www.investopedia.com/articles/investing/122315/worlds-top-10-banks-jpm-wfc.asp
2 – https://www.businessinsider.com/fintech-ecosystem-report, https://www.mckinsey.com/industries/financial-services/our-insights/synergy-and-disruption-ten-trends-shaping-fintech
3 – https://www.forbes.com/sites/tomgroenfeldt/2014/09/17/banking-vs-google-apple-and-amazon/
4 – https://www.openbankproject.com/psd2/
5 – https://www.youtube.com/watch?v=o9T9crNMB_w
6 – https://thefinancialbrand.com/17766/commonwealth-bank-augmented-reality-iphone-ad/
7 – https://sandbox.developerhub.citi.com/api-catalog-list?field_api_market_tid=50
8 – https://developer.bankofamerica.com/ CPODevPortal/apidocs/public/APIDevPortal.html#/home
9 – https://www.about.hsbc.co.uk/
10 – https://home.barclays/investor-relations/reports-and-events/annual-reports/2017/
11 – https://www.capitalone.com/about/