11 March 2020
On the way to Open Banking, financial institutions should embrace an API-first culture
API is the trendy buzzword in the financial world these days. Several banks have started to open APIs to comply with PSD2 and support digital and overall developments. Some financial institutions are now exploring the early opportunities offered by the Open Banking era. This essentially means they allow their financial products and services to be redistributed through third parties.
The Open Banking movement is largely driven by APIs that fit in the regulatory framework as the majority of banks focus on compliance instead of innovation. But Aurélie Fon, Product Marketing Manager Digital Banking at Worldline, sees a change, as financial institutions are starting to realize that API solutions can also be used outside the PSD2 regulation scope. She explains in this blog about the change of culture that is needed for an API-first strategy.
The thought that API solutions can also be used outside the PSD2 regulation scope can lead to new revenue streams: I am referring to the emergence of various 'premium commercial APIs', as they are often called. Through those commercial APIs, banks can ‘resell’ some of their assets for a financial contribution – such as customer profiles, risk scoring or identity services. Financial institutions can thus generate new revenue streams by distributing and monetizing their specific assets, knowledge or even technologies.
But exploring a role as API supplier is not just about opening APIs to third-party providers; it mostly means that financial institutions really need to adopt a well-defined go-to-market strategy that support their overall business model. In order to do so, one’s must start by considering each API as a product in its own – with a proper lifecycle, governance and audience – in order to ensure its diffusion and adoption (and ultimately monetization). But where do banks start when they want to prepare for a life as an API supplier?
To get straight to the point: a radical transformation of the culture and an API-first strategy is necessary to build an API marketplace that suits the needs of the customers. The strategy should be designed to support internal processes long before even considering distributing APIs to external providers trough a marketplace. This change is hard, and it could take about 3 to 5 years for a traditional bank to reach the ultimate API-driven culture.
Internal culture is an important barrier to change for many institutions – where belief systems must drastically evolve, probably more than information systems. Furthermore, some banks are still struggling to fully comply with PSD2 requirements and might be unable to grasp the bigger picture of the change to come, as I noticed while visiting the API days in London.
To move forward, a financial institution should ask itself the following questions:
- Internal & branch: What does my workforce need to do their job effectively? What services could we digitize to improve advisors’ efficiency?
- Digital Services: What is the need(s) we have to fulfill within our customer base? What is the inner motivation of users when accessing this particular service(s)?
- API marketplace: Who is our target audience and how will they use our services? Why would they choose my API products over a competitor’s ones?
A long-term vision is important. To build momentum, financial institutions must bridge the gap between technology and business roles. It is inevitable to connect the ‘humans behind APIs’ to fully understand what’s at stake, and only the combination of technological and business expertise will empower banks to define all crucial components of their ‘API supplier’ strategy.
In the end, it is important to develop an attractive marketplace in which selected premium APIs are shown and presented in an attractive way. In fact, an API marketplace is no different from other digital marketplaces used; its main objectives are to display the most relevant products to the right audience and to maximize its conversion into paying (and returning) customers.
Usability of the developer portal
To hope to seduce developers and start building a proper community around their marketplace, financial institutions should maximize the usability of their developer portal and start thinking in terms of ‘user-first’ essence - now referred to as the ‘Developer Experience’ (DX).
The DX is essential in this case. Banks that are heading towards an API supplier role must carefully consider all aspects of their new API products – including optimizing the DX to reduce friction and ultimately reduce (high) drop-out rates occurring at each stage of the developer journey.
By offering third-party providers and their developers the right tools to develop tomorrow’s next-gen services, financial institutions will be able to seize one of the new business model opportunity brought by the platformification of the banking industry.