For decades, banks have been located at the center of communities. Go to any town or city and most likely you will find a common space with a religious building, a government building, and a bank smack dab in the middle. The advent of the (Internet-connected) smartphone changed this organization and shifted the hub of community activities to wherever anyone happened to be online. Most banks responded to this shift by offering traditional products and services online, hoping that their offerings would generate revenue and preserve relevance as a central institution. However, as online competition grew, service fees and revenues eroded leaving banks in a difficult position on the periphery.
The path forward seems clear. If banks want to maintain societal relevance and the revenues associated with that position, they need to locate their platforms and services at the center of community activities once again. What is the quickest route to daily online centrality? Assemble open application program interfaces (APIs) that provide indispensable value to customers. In essence, take a page from technology companies, they have already figured this out.
Open API and Platform Successes
On a daily basis, people log into Facebook, Instagram, LinkedIn, Amazon, Google, Pinterest, stock trading platforms, bank accounts, payment sites, credit card accounts, and news outlets. The technology companies have placed themselves squarely at the center of user daily life by deploying deeply valuable open API architectures which track and store movements, purchase data, events, friends and networks, preferences, behaviors, and psychology. Banks and stock trading platforms on the other hand, have deployed fewer accessible APIs, mainly offering services in trading, payments, and lending but not much else. Programmable Web has a current listing of over 100 banking related APIs but this sector is small compared with the nearly 16,000 APIs listed.
Technology firms have successfully deployed revenue generating platform models (powered by APIs). So how can banks learn from these successes and what should banks consider as they start building platforms and assembling APIs? Here are a few thoughts…
Review the Landscape
Programmable Web it is a great place to start reviewing APIs. Existing APIs offer a quick glimpse into market direction and allow banks to bolt on API services a-la-carte. As we stated in last week’s post, there is no need to re-invent or rebuild entire APIs from scratch (except in certain instances). Market tested APIs can simply be integrated into bank platforms saving time and significant development cost.
Capitalize on Strengths
Less-than-integrated bank APIs leave significant data, analytics, and value on the table. For decades, banks have curated a stockpile of payment and behavior data, multi-generational relationships, and critical business intelligence, yet very little of this data is being leveraged. Taking the thesis above into context, banks can regain market centrality by using their data, relationships and business intelligence to serve as a central mediated transaction, information, and service hub.
At a retail level, banks can learn about customer lifestyle aspirations (Amazon/Pinterest) and provide the payment and/or financing services to mediate those transactions. In addition, traditional functions such as mortgage and debt servicing can be more intelligently marketed to customers segmented via age, income, market, and inquiry history (Facebook/Google).
From a commercial standpoint, banks can encourage API uptake by offering in-network B2B, B2C and even C2B referrals and discounts. Such a platform would also encourage participation outside the community as non-traditional actors may wish to access the local networks and markets.
Banks are starting to realize that old revenue models are drying up. To regain a position of market centrality, banks must rapidly re-imagine their business and revenue models. The sooner banks embrace the API enabled platform architecture, the sooner they will be able to claim a stream of revenue based on their core strengths and capacities.