Empowering the Digital Bank: The API economy – helping financial services companies to build better products
The application programming interface (API) economy is based around four building blocks: social, mobile, analytics and cloud. Apps and services can be linked rapidly and cost-effectively to create an extended value proposition. For example, buyers and sellers could be connected via an exchange, where all parts of the value chain come from separate parties and are linked via APIs to facilitate an end-to-end transaction.
In the past, if companies spotted a niche or an inefficiency in the market they would need to build all of the technology to create a new product offering. However, using APIs enables them to take their pre-existing intellectual property and link it to new services, saving time, money and allowing business to create new or extend existing value propositions. Although APIs have been available for many years, it is only the modern APIs that have been designed for today’s ‘plug and play’ world.
Simply put, at a very basic level, by simply enabling business to do more rapid prototyping, with low cost and overhead is a benefit in itself. Traditionally on boarding developers, creative agencies or even working with existing partners to do experiments was a long costly affair leaving businesses frustrated with the lack of agility. By making small changes to the way you partner, design, execute and orchestrate has big impacts on cost savings and agility.
The demand for data is strong across alternative lenders, accounting software platforms, comparison and advisory services, payment services and others. Many of these organizations already create considerable value from data. These organizations currently access data using means such as manual downloads, screen scraping, manual entry and occasionally bilateral data feeds. There is widespread consensus that these methods are hard to use, expensive, and have limited capabilities.
Stepping up
Banks and insurers in the financial services market have traditionally used a vertically integrated business model that enabled them to control everything from the presentation layer via the middle office to the back office. Owning and managing this type of model has advantages, but the main disadvantage has become the need to serve customers with the same enhanced digital experiences they receive elsewhere.
Third parties are reducing the value of the products financial services companies offer to their customers. For example, online money conversion service TransferWise has helped customers to transfer US$1 billion worth of currency internationally, taking millions from the fees that banks would have received if they had exchanged the money themselves. Plus, there are hundreds of examples of fintech companies that have provided innovative and modern solutions for payments, loans, mortgages, investments and savings.
Value-added services
The opportunity for banks is to build on their reputation as a regulated and trusted source to provide similar products and services that are more customer centric and aligned to customers’ digital lifestyles, not just their transactions. Banks can now combine their existing rich data with public data and partner with specialists to create new service levels. For example, they may team up with an automotive trading website such as AutoTrader. A potential car buyer who is known to have owned a car for three years may be targeted with advertisements for the bank’s personal loan products while they are using the AutoTrader website. In addition, AutoTrader may be able to facilitate the loan or organize an insurance policy from within the app, offering a seamless experience for the consumer.
An alternative benefit of the API economy is that banks may be able to sell products and create new propositions for their customers in ways they have not previously considered. In the Netherlands, multinational banking and financial services company ING has a small business offer that it promotes to small and medium businesses. As part of this offer, the company sells Microsoft Office 365, which can be extended through APIs with specific templates that increase the benefit for the business and enhance the long-term value of the bank. There are numerous opportunities based around the Internet of Things and other emerging technologies. It is almost impossible for financial services institutions to keep up with the pace of change if they own and operate all of the technology themselves, so the time has come for them to consider the options the API economy brings.
To list a few examples, the API economy for financial services enables enrichment in shopping, payment application, to build fun interactive financial views for children, gamify interactive mortgage scenarios, gamify donation for charities, smarter Jamjars for the unbanked, allow family members to approve online purchases or payments, target personal offers to consumers based upon their previous purchases, personal preferences, location and their latest social media posts, reward consumers by tracking behavior through internet of things and financial activities, standardize regulatory reporting, stress testing and to standardize and share fraudulent or suspicious activities to a wider security network quicker.
Embracing the API economy isn’t just all about exposing your API’s externally. There are benefits for using the model internally and also clearly applying it with partners. Being ready for when the business model is right and mature enough for your business is part of the winning strategy.
Empowering the Digital Bank
At Microsoft, we recently carried out research to determine what it’s like to be a banking customer today. To bring our findings to life, we have developed a video story to demonstrate some of the ways in which banks can play a much more active role in our financial decision-making processes and remain relevant in our connected digital lives. Our aim is to show you some of the opportunities available to banks to not only fulfill the service needs of their customers, but to develop their brand into an invaluable information service – a service that connects with customers in their daily activities and helps them navigate the milestones in their lives.
About Richard:
Richard Peers is Microsoft’s EMEA Banking Industry Lead working with their largest clients and Fintech innovators. He has spent the last 18 years at Microsoft in sales, services and marketing leadership, with the last three years deeply engaged with clients and agencies in the Financial Services and Retail space. Working on projects and engaging with leadership teams he brings an up to the minute insight on the vision and the practicalities of “Banking re-imagined”.
Richard is a regular speaker at events and contributor re: payments, innovation, technology and the environment via social media and is a member of the panel selecting the Fintech50 2015. As a member of Level39, London’s premier Fintech community he advises a number of start-ups in the banking space.
