No time to wait. Your bank should be gearing up for the API economy. Edgars Bremze explains why APIs will change banking for good.
The rise of the API
APIs have been in use for decades in banking. But it’s only in recent years that they have been seen as customer-facing tools that can add value. Prior to this, they were simply process tools, often used as part of an agreement between a bank and a provider willing to utilize specifically developed APIs.
With new regulatory requirements, especially in Europe, things began to change as APIs became a key to opening up banking. Now, we see banks looking to exploit API technology in the form of premium APIs (APIs that are not a regulatory requirement and that banks can charge a fee for their usage). These can generate new revenue streams and open up channels to onboard new customers.
Common API use today
To date, the most common business cases for APIs have been in acquiring, mainly in the form of enabling account-to-account payments for merchants, where there is a clear business case compared with existing card-based payments. In our experience, the role of APIs in issuing has been far less influential. We mainly see them used as a support for personal financial management tools. Of course, an API is only as good as the quality of its design, build and availability. It must match the quality of the service or product on offer to add value.
Common API use tomorrow
The list of potential opportunities is endless for those banks that are willing to embrace the API economy. In Europe, for instance, where open banking offers a legal framework (API protocols standards are not regulated, but a majority use the Berlin group standard) internal and external integrations can be unified. Should core banking, payment or card systems need to be replaced, a single external API format will make it a much smoother and more frictionless process. But what opportunities lie around the corner? How will you be able to simplify services and differentiate yourself from competitors through APIs?
These are just some of the scenarios being discussed on different markets by banks looking to utilize API integrations:
The beauty of standardized APIs is that they give you the ability to build a broad layer of additional services – through strategic collaborations – without the legal and bureaucratic burdens typically faced by banks. The ground rules – i.e., API standards – are already in place. As a bank, you will be able to sell your services in new ways and compete with innovative products that offer a great user experience.
Looking to other industries for trends
Is there a catch? Looking to other industries, we can see that there will be a time in the near future when the banking world reaches a junction, in the same way that the travel industry once did. You used to book your flights directly with an airline, your hotel directly with a hotel, and a rental car directly with a rental company. Now, you can book everything through an airline, or through an aggregator – everybody is looking for an extra slice of revenue within the travel experience and banking will become the same. The question is – how will your bank position itself?
Which bank are you?
Looking to the future we believe that there will be banks that strive to become service providers, banks that create the infrastructure and banks that remain in the middle. There will be much more flexibility, i.e., banks will be able to pick and choose vendors, just like customers do nowadays with bank services. Which vendor you choose could be the key to your success in the future.
A system built for API integrations
Here at TietoEVRY we are convinced that API integrations will be central to the future success of banks. After all, when combined, our Card Suite and Open Banking solutions, allow banks to expose their services to third parties or aggregate additional data from other market participants. This supports easy integration and the creation of a broad range of additional value-added services.