To contend with insurgent competitors, regulatory mandates and demanding consumer requirements, banks must embrace open APIs. Why? Open APIs enable them to plug-and-play in the digital business ecosystem and reinforce their value proposition amid escalating share-of-wallet challenges.
Although banks have traditionally been considered pioneers of process automation, they now find themselves in the background of today’s consumer-led, digitized financial services landscape. Insurgent financial technology competitors (fintechs) are disrupting traditional banking strongholds worldwide, bringing to market a wide assortment of innovative plug-and-play, multi-channel banking solutions. Such offerings — including digital wallets and peer-to-peer (P2P) lending and payment offerings — are increasingly finding favor among today’s device-obsessed consumers.
Banking as a Service
To retain wallet share, banks need to rethink the future of service delivery. Banking as a Service (BaaS) offers banks a way to level the playing field by radically shifting from being builders of financial solutions to assemblers of consumer-driven financial management tools and related offerings. By doing so, banks can accelerate their entry into new markets and quickly size up and meet the needs of digital consumers — or fail fast and move onto other more profitable services and consumer-relevant offerings.
However, the move to BaaS is not for the faint of heart. Banks must be willing to unlock their data and application services to partners (i.e., fintechs, thirdparty developers, retailers, etc.) through standardized and open application programming interfaces (APIs). They must also be willing to plug-and-play with new and emerging industry platforms in which they act as participants, not owners, of the customer experience and relationship.
The API strategy
Such an all-encompassing transformation must be considered over a continuum of time and is predicated on the bank’s appetite for risk and digital business maturity. It starts as an exploratory venture, moves to open API platform selection and expansion, shifts into core process transformation, and ultimately evolves into a comprehensive BaaS model. The full journey pivots around the following:
With a successful implementation, banks can evolve from being a peripheral entity in the digital revolution to an important power broker that ignites benefits for consumers and partners across the digital value chain. Partners, in particular, stand to benefit from an expanded customer base, enhanced innovation, new sources of revenue and accelerated time to value.