Today's article is all about 'Application Programming Interfaces' (also known as APIs) and why they should be on your radar when it comes to your innovation strategy.
For the uninitiated, let's start with a short reminder on what APIs are.
An API, in its most basic form, is a software intermediate. It enables two applications to communicate with one another. If you will, consider myself a technological translator.
You'll probably be Googling the weather in your hometown as we approach (hopefully) nicer days. Because Google is not in the weather business, it obtains this information from a third party via an API. The API offers them with the most up-to-date weather data in a re-formattable format. This results in the 'rich snippet' you see at the top of search results.
In finance, we've seen APIs used for anything from real-time stock quotes to payment APIs, which are the backbone of e-commerce growth.
APIs are a significant component of the expanding Software-as-a-Service (SaaS) ecosystem. They are the glue that holds a broad ecosystem of solutions together... What do we all expect from our business solutions? Of course, there is integration. No one wants to implement solutions that do not communicate with one another in order to optimize data transfer, workflows, and time management!
API techniques have contributed to the unprecedented expansion of tech enterprises. Businesses thrived by combining best-in-class digital offerings to create one-of-a-kind complete consumer journeys. Uber is, without a doubt, one of the finest instances of this. Their value proposition was created by combining APIs from a variety of suppliers, including Amazon Web Services, Mandrill, Google Maps, Braintree, and others.
Last year, Uber outperformed its initial IPO offering estimate of $75 billion. They accomplished it by utilizing APIs to access other people's data. Uber now provides its own APIs to other companies, producing additional income streams.
This is a win-win situation for everyone. API suppliers are compensated for their services. For example, eBay's submit a listing API accounts for over 60% of its income. Customer-facing businesses, on the other hand, receive customer experience points for providing distinctive services to their base, hence enhancing their competitive position.
Banking has been a little late to the API party, due in part to regulatory requirements and in part to risk aversion. However, there are certain major reasons driving APIs into the agendas of C-level executives. They are as follows:
Relationships with complex customers: Banking customers will be transformed as a result of the epidemic. We've grown accustomed to omnichannel assistance that is available 24 hours a day, seven days a week. There is a yearning for all-encompassing finance. Customers demand financial tools, products, and services that engage and simplify their lives.
Fintech disruption: From robo-advisors to peer-to-peer financing, fintech is disrupting the industry's basic fabric. Furthermore, digital-first fintech banks, like as Starling, continue to pose significant market share challenges with new offerings. Their nimble, cloud-based company architecture enables them to respond swiftly to market demand. APIs can assist incumbents in catching up or partnering with these organizations, resulting in a two-way data flow.
Growth in technology: Cloud computing, Internet of Things (IoT), and blockchain technologies are entering the mainstream. This broad range of technology makes it difficult for banks to specialize in-house. Partnerships will be critical battlegrounds for the creation of new income streams, and a robust API strategy will drive this.
Regulatory pressures: Finally, and most critically, regulatory reform compels banks to reconsider their digital offerings. To be sure, the Open Banking and PSD2 directives are providing customers more control over their funds. This should boost competitiveness over time. Banks that fail to innovate, on the other hand, will find themselves without unique selling points once their massive data pools have been opened up.
So we've covered the fundamentals of APIs and why they should be on your radar in 2021. Now, let's take a look at some practical ways APIs might boost financial innovation:
Fintechs compete for prized access to a bank's client base, while institutions compete for a fintech's creative stack. By picking best-in-class services that are highly creative and that you would not have had the time or money to produce yourself, you may get exceptional employee and customer experiences without the risk of significant R&D expenditure.
IT banking processes change at a sluggish pace. Historic infrastructure has been plagued by complex architecture and reluctance to risk. The use of waterfall approaches and huge complicated annual releases with no central decision authority limits innovation. Using APIs, banks may adapt to the fluid nature of the modern banking consumer by bringing service options to market faster.
We've heard a lot about banks shifting to more customer-centric business models. Open Banking, on the other hand, allows clients to select the capabilities and services that are most relevant to them. Customers' ability to effortlessly move between providers and toolkits will enhance innovation as fintech and banks compete for business based on performance and ease.
Digital experiences distinguish digital-native banks from incumbents. Almost all consumers have gone digital since the outbreak. Legacy banks must incorporate comparable experiences, which APIs can swiftly bring in, allowing them to compete on innovation and increase engagement. This has been observed with supplementary services such as rounding up purchases into investments or savings products.
Banks have long been on a digitization path. The advent of the Banking as a Service (BaaS) model, which provides banks with a wealth of options, is the next likely future.
At one extreme, there will be banks that are purely concerned with client management and distribution. They will use fintech to supply fundamental services in an ingenious way. Banks, on the opposite end of the spectrum, solely provide financial services. These banks will concentrate on infrastructure and risk management, drawing on their extensive knowledge, while the front-end will be controlled by other fintechs or banks.
In actuality, banks are more likely to fall somewhere along this range as they evolve. APIs, on the other hand, will be critical to enable whatever model mix a bank decides to use.
Traditional banks are at a crossroads. Banking as a service (BaaS) and open banking are now a reality. When the elephant in the room is not addressed, digital natives might swoop in.
Digitally converting services takes time, but as previously discussed, a good and appealing API strategy will bring innovation in a cost-effective and timely manner. Speak with us now about the best API approach for your company and customers.
We don’t care if you are a global enterprise or a startup… if you have the real ambition to grow, we’d like to talk to you!