Mobile. Data. Automation. Partnerships. The cloud.
Banks generally agree that these forces are driving the industry's digital transformation. But the connective tissue under it all is the application programming interface.
APIs allow companies to connect and share data more easily. They are only going to be become a bigger force in the industry — and all industries for that matter — as time goes on.
"Within five years it will be difficult to distinguish between what is an API strategy versus what is just a financial services strategy, or the mobile opportunity from the API opportunity," said Rob Berini at the consulting firm Genpact.
Banks have been using APIs for about 15 years, but those have been internally focused and intended to make it easier for software programs to work together. Today's focus on APIs involves outsiders.
By using an open API, companies can build and design programs on top of an interface, saving time, money and other resources. Uber's map, for example, uses the Google Maps API. Getting Uber to market didn't involve building an entire mobile app, just focusing on the marketplace and payments platform (and putting some cars on the map).
Open APIs are table stakes in the advancement of mobile services. With people constantly glued to their phones, mobile is at the heart of the digital-physical convergence happening across industries. This need to allow third parties to seamlessly access bank data will grow as consumers demand new ways to access their money, such as asking Amazon Echo for a bank balance or connecting to a Nest thermostat on the Internet of Things.
"That's the transition we're seeing," said Secil Watson, the head of wholesale internet solutions at Wells Fargo. She pointed out that by 2020 there are expected to be 50 billion connected smart devices.
"APIs are a way to open that door for us. … I'm not going to have an app that sits on Nest just so a company can pay their power provider more efficiently, but I will definitely have APIs that they can use to create a product or augment a product." Her department has created an API channel for its customers to set up their enterprise resource planning systems with Wells' online banking.
Wells' tiptoeing into open APIs by offering them to commercial customers is typical of banks, which see such clients as the test case. Consumer applications hold the greater opportunity, but also carry more risk given cybersecurity and data issues.
Still, most banks believe they need to partner with fintech companies in the form of collaboration or investment instead of trying to compete with or acquire them, as part of their digital transformation. For this kind of collaboration to work, however, banks need to have a robust system of APIs that enable them to plug into the fintech startups they want in their marketplace or ecosystem.
"I don't quite understand how an API strategy could be anything but a core part of your financial services strategy," said Likhit Wagle, general manager of IBM Global Banking & Financial Markets.
But it is not merely a tech issue, Wagle said. The banks also need to open APIs in a way that won't run afoul of regulators.
This is where IBM is doing a lot of work, he said. Bluemix, IBM's cloud-based development environment, and its partners aim to help banks to identify which fintechs they want to integrate with, ensure those startups meet regulatory requirements and integrate them into the banking platform without much complicated, expensive integration work, he said.
More than 40% of Bluemix Garage users are banks, IBM has said.
Although banks are experimenting, there is still a considerable amount of worry. There's a fear that banks will be relegated to the role of a utility and lose control over customer interactions if they are too accepting of connecting with third parties via APIs, said Berini, who is the global service line lead for omnichannel customer acquisition and servicing at Genpact.
It's hard to dispel that fear when there isn't much clarity on how APIs can drive a bank's revenue, make it a profit and help it achieve growth.
"There's still a little confusion in the market [about open APIs] — what is it? Should I care about it? Does it mean anything?" said Bruce Wallace, chief digital officer of Silicon Valley Bank, which last year acquired the API startup Standard Treasury to develop its API banking platform. "We're still figuring out how to fine-tune that message in the market … we really need to figure out how we market and evangelize that differently than what we've done with other products and services because it's something that's new to the industry."
Despite SVB's taking the lead in banking on open APIs, Wallace said, in the past year it has focused significantly on internal development and the balance between integrating APIs for its own purposes and for building new services for clients' use. The bank is creating a layer atop its own internal APIs so it can continue developing at a more rapid pace, as well as a layer for it to introduce new products and digital experiences more quickly to market, he said.
SVB has mostly offered transaction services, like Stripe Atlas, which equips global entrepreneurs with the necessary banking and payments relationships to launch an online business in the U.S. The offering is a partnership between SVB, the payments technology provider Stripe, PwC, Amazon and the law firm Orrick, Herrington & Sutcliffe. The bundle of products and services includes bank accounts, tax advice, legal guidance and online building tools.
"We can create some APIs to have an open banking platform that's more than just around transaction services," Wallace said. "It can be around how we enroll clients, how we allow them to access other products and other services through our platform through APIs, just so it's a far more seamless experience to do it through a single platform instead of going through a multitude of places to try to get data and information."