There’s no doubt: Technology innovation—and Application Programming Interfaces (APIs) in particular—are transforming how we connect, bank and pay.
Except for digital currencies and non-bank blockchains such as bitcoin, we can safely say that banking and payments are truly changing from a customer experience perspective. To be sure, tackling true business model changes is complex. Factors such as consumer trust, fraud, security, business growth, and loyalty rewards must be taken into account.
But we can already see how APIs enable a bulk of the digital innovation today. In fact, almost all digital innovation is now made possible because of API capability. Various types of APIs are in play that allow for real time transactions—whether accepting payments on our websites; getting Uber drivers to open retirement accounts with Betterment; authenticating users; signing up for a bitcoin exchange to accept bitcoins; meeting online Know Your Customer regulations; or paying bills online. In other words, it's a very fluidly connected world.
While business models and technology will definitely evolve and mature, financial services really should think about how APIs can be used to transform the end-to-end customer experience. Much is at stake. It’s not just about providing easy access to the services we provide. API solutions mitigate the risk of banks being taken out of the equation, or made obsolete.
What does a banking world transformed by APIs look like? The evidence suggests the evolution of APIs may follow this three-fold roadmap:
Step 1: Opening access
APIs are used to provide access to services to accelerate adoption and growth. A significant proportion of API usage today falls into this category and leads to new partnerships and deals. The most common consumer examples are of course the major payment gateways such as PayPal, Stripe and Authorize.net. And new uses cases are cropping up everyday. The recent Wells Fargo integration with Xero marks a step in a direction where tightening the integration reduces the possibility of disintermediation/ displacement and puts the customer in the driver's seat.
Then there's Invoicera, which provides APIs to track and send invoices to customers. In addition, the online shopping malls (created by banks such as the Citi Bonus Cash Center) were examples of this advanced maturity, too. Although probably ahead of their time and potentially becoming Amazon.com alternatives, they instead fell in popularity.
API integration has been used on the enterprise software side for a long time. But new models and authentication protocols have helped open these up more broadly. Several blogs on Let’s Talk Payments, and a slightly dated blog on API Evangelist, have compiled a nice list of companies that have successfully taken this first step in the API journey.
Step 2: Originating transactions
Several firms listed above are moving towards the next step in the evolution of simple APIs. Besides enabling access and integration, these portals originate transactions based on customer context. Apps such as Clink and Acorns are steadily on this journey to create an ecosystem. They’re tapping into our lifestyle and originating transactions.
Traditional banks and credit companies have also tried to create these ecosystems in their mobile and online accounts by providing us retail coupons and offers through many brand partnerships. What better way to step in based on context, and provide the right offers to customers! Yet these capabilities must be further refined: Right now they are neither a push nor a pull. Citi's Price Rewind program, for example, attempts to get in the middle of consumer transactions by tracking price changes for certain purchases. Similarly, the integration of Uber within the United Airlines mobile app represents an example of enhancing customer experiences. From anticipating (analytics) to wish lists (getting customers to tell you), techniques to originate transactions and get in the right places are taking hold. The real test of this phase of API maturity rests upon creating partnerships on the one hand, and enabling new customer experiences on the other.
Step 3: Creating experiences, connecting value
Customers are led to believe that financial services firms have a higher purpose than just turning a profit: they should assist with their financial goals. The U.S. Department of Labor's fiduciary rule and UK's move with the latest Payment Services Directive 2 regulation both aim to ensure that consumers aren’t hit by too much in fees, or restricted in their choices. In the new world, it will be critical to create experiences and connect the value many players provide to mitigate and counter the competitive forays into independent product lines and offerings. For example, the Germany-based Fidor Bank started the modern banking trend by creating smart accounts based on API integration. Monzo (previously Mondo) has followed quickly.
Expect that in the future, proactive advice and suggestions to customers based on analytics and partnerships will lead to opt-in fees and other commissions to support the business models of various players in the system. But the big difference will lie in how customers perceive and experience these services in context. Banks have been always provided these various services: e.g. bill pay, credit scores, overdraft protection, lending, fraud protection, spend analysis, etc. But they must be much more proactive in bringing these capabilities together—while at the same time unbundling them to create a helpful, smart account feeling.
The services they bundle may not be just financial in nature, as evidenced from the retail and travel integrations many have done. In essence, they must act like a conglomerate—without really being one. The biggest advantage financial services firms have today is that they currently rank high in the customer interaction spectrum. They possess consumer trust and recall on the one hand, and have the right reach and frequent, tangible engagement on the other. Thus the third step in API maturity is to leverage that enviable position and become integral to customer experiences. And that comes by connecting the value from different services as per the customer's context.
The Complete API Journey
The three levels of API maturity are my way of depicting the future of an exciting trend in the financial services industry. In fact, the future is about destroying industry boundaries and creating a customer-centric ecosystem. Advances in digital are creating new models of interaction to address gaps in customer experience. Thinking strategically about the API adoption roadmap will prove instrumental in maintaining customer intimacy. The alternative—being relegated as a fungible service provider—only provides extra motivation to change, even as customers’ needs and wants change.
Manish Grover is GTM at Capgemini.