It’s open season in banking! Open API season.
In today’s blog, we’re talking about all things ‘Application Programming Interfaces’ (more commonly known as APIs) and why they should be on your radar when it comes to your innovation strategy.
Let’s start with a quick refresher on what APIs are, for the uninitiated.
In its simplest form, an API is a software intermediary. It allows two applications to speak to each other. A technology translator, if you will.
As we head towards (hopefully) sunnier days, you’ll likely be Googling the weather in your hometown. Now, Google isn’t in the weather business, so it sources this information from a third party using an API. The API provides them with the latest weather data in a re-formatable way. This culminates in the ‘rich snippet’ you experience at the top of search results.
In finance, we have seen APIs applied in a range of functions from real-time stock prices through to payment APIs, the backbone of e-commerce growth.
APIs are a massive part of the growing Software-as-a-Service (SaaS) ecosystem. They are the glue, linking together a diverse ecosystem of solutions… and what do we all want from our business solutions? Integration, of course. No one wants to onboard solutions that don’t speak to one another to streamline data transfer, processes and time management!
The unparalleled growth of tech firms is in part related to API strategies. Businesses flourished by piecing together best-in-class digital services to create unique holistic customer journeys. Uber is, arguably, one of the best examples of this. Their value proposition was built by integrating APIs from a myriad of providers like Amazon Web Services, Mandrill, Google Maps, Braintree, and others.
Uber surpassed its initial IPO offering estimation of $75 billion last year. And they did it using other people’s data via APIs. Uber now delivers its own APIs to other businesses, generating new revenue sources.
This is a mutually beneficial ecosystem. API providers are rewarded for providing their services. For instance, eBay generates around 60% of its revenues from its submit a listing API. Conversely, customer-facing entities earn customer experience points for bringing unique services to their base, improving competitive position.
Banking has been slightly later to the API party, in part due to regulation and in part due to risk aversion. Yet, some key drivers that are pushing API’s onto the agenda of C-suite tables throughout the UK. They are:
So this unearths a few questions for decision-makers in banks. How will the traditional banking model evolve with the use of APIs?
Banks have been on a digitisation journey for some time. The new likely scenario is the rise of the Banking as a Service (BaaS) model (which we covered in more detail in this blog), which presents a continuum of choice for banks.
At one end, we’ll have banks that focus solely on customer management and distribution. They will cleverly utilise fintech to deliver core services. On the other side of the continuum, banks offer banking-only services. These types of banks will focus on infrastructure and risk management, leaning on their vast years of experience while the front-end is managed by other fintechs or banks.
In reality, it’s more likely as banks evolve they will fall somewhere along this spectrum. However, APIs will be central to enabling whatever mix of a model a bank chooses to adopt.
So we’ve covered the broad strokes of what APIs are and why they should be in your thinking in 2021. Now, let’s turn our attention to some functional ways APIs can super-charge innovation in banking:
Traditional banks are at a fork in the road. Open banking and BaaS are now a reality. Failure to address the elephant in the room allows digital natives to swoop in.
Digitally transforming services takes time, but as has been explored, a solid and compelling API strategy will deliver innovation in a way that is economic and expedient. Speak to Waracle about the correct APIs strategy for your business and your customers today.