Three Steps to a Bank's API Success
Mondo, a U.K. challenger bank, plans to make it easy for customers to use financial products and services from other companies. Rather than giving away the store, the bank says this approach will make it a marketplace.
Several large banks, including Citi and Bank of America, have begun sharing proprietary code with fintech startups and others. The new level of openness brings benefit to both sides.
In my previous article on BankThink, I outlined some basic principles for banks adopting "application programming interfaces," including the importance of not ceding front-end customer relationships to third-party providers. This time I would like to outline, for banks already opting to use API technology, how they can get the most out of its features. This can be called an API maturity model.
It is easy to get lost in the technological complexity of new financial services channels. But it's important to stay focused on how the technology can optimize the business, and customer outcomes. The goal is not to deliver shiny new objects to keep up with the excitement of innovation. The goal is to use the newest innovations to deliver value.
To ensure that APIs are connectors of value, here are three steps to building an API maturity roadmap:
Make It Easy for Customers
Often, important aspects of a customer's financial management experience are outside the scope of a traditional bank's core business. But APIs allow a bank to more directly help customers accomplish their objectives. True, the functionality for many of these objectives is carried out by third parties, but APIs still allow banks to be involved and capitalize off of their customers' satisfaction.
Allowing third parties to simply accomplish those objectives while banks focus solely on their core business is no longer a viable option. If a customer concludes that he or she can get their business done without needing a bank — using popular digital services like peer-to-peer payments and spending management — then disruption will hurt the banking industry. But if a bank works backwards from the experiences customers find to be most useful then the bank can use APIs to be in the mix of the customer interaction.
Banks must enhance their technology and data infrastructure to enable an ecosystem of partners. It's a model very familiar to the technology world where product companies enable integrators and solution providers on their technology platforms. Banks should be constantly searching for and evaluating partners from their customer's perspective, not just their own. In some notable cases, the bank can even market the service as its own through white-label branding. The key is to enable technology providers or partners to help customers even while promoting loyalty and stickiness of their own products.
Move Toward App Ecosystem Model
The next level of optimizing API capability goes beyond merely partnering with third parties. At the end of the day, the technology will allow banks to create their own technology platforms to exclusively provide access to apps created by third-party developers.
This level will create a marketplace and fuel rapid innovation on the banks platform without sacrificing customer experience or losing customers to nonbanks. This ecosystem will make it easy for the customer to browse for the services they need, and seamlessly sign up without having to worry about authenticity, value, quality or service levels.
In addition, the ecosystem will enable a single view of the customer's identity across all financial services-related interactions. It also provides an excellent channel for individual providers to leverage opportunities that other providers may generate — an incentive that will fuel constant innovation.
Some overseas banks like Mondo and Fidor are already trying the app store approach, leveraging the power of third parties to develop value additions for their customers. Under this model, APIs are bi-directional but with the bank at the center. This brings tremendous value with outstanding levels of convenience for customers while reducing operational costs of partners, such as advertising. It also allows the bank's channel to be an exclusive home for innovative services.
Not Just Bill Pay Anymore
Of course, the ultimate goal is to offer more than just a list of apps to improve the customer experience. A proprietary platform enables banks to cross-link customer needs, stringing together third-party innovations based on the specific profile of a customer interaction. This is similar to how travel services bundle together related products and services on their platforms.
The concept is not dissimilar from how banks have already offered bill-pay services through their mobile and online channels. What started with customers being able to make payments to external parties right from a banking account has the potential to provide past payments history, point out anomalies from month to month, and tie together savings plans with financial management by forecasting future account balances needed.
Connecting individual value propositions by creating overarching customer identities and helping customers with proactive advice is also what will differentiate one banking API platform from the other. For example, banks already provide coupons from select retailers. In the future, banks can move towards building wish-lists, providing in-the-moment financial advice on potentially impulsive purchases, and many other use cases.
Developing an API today is almost a no-brainer, but a bank must go into it with clear objectives. And for it to take off, banks must take steps to make customers aware of the technological capability, clarify each value proposition from the customer's perspective, and on-board customers quickly and comprehensively. With the rapid pace of innovation, it is critical to focus on what are the essentials of customer experience in the digital age, and then work backward from there.
Manish Grover is the author of "Dancing the Digital Tune: The 5 Principles of Competing in a Digital World." He is engaged in go-to-market planning at Capgemini. The views expressed are his own. Connect with him at www.manishgrover.com.