Banks in the UK and across Europe are faced with new compliance regulations notably the Payments Service Directive 2 (PSD2) and the UK Government’s policy around Open Banking. In combination, these new regulations aim to foster a more competitive and open banking sector. To comply with these initiatives means that banks will have to develop open APIs that enable, for instance, retailers to take payment directly from a customer’s bank account and Account Information Service Providers (AISPs) to access customers’ bank data to create information-based services (providing permission is granted by the account holder). This is a massive compliance headache for banks but also an opportunity.
Open APIs as a Business Opportunity
Banks now have a real business opportunity to get closer to their customers by delivering digitally innovative services that help customers and increase revenue for the bank. A focus of this must surely be the creation of new services for customers that are developed through the bank, partners and customers themselves rather than at present where enterprises and banks in particular operate in a closed, business model. In this present model, value is created for the customer and the bank…by the bank.
In the new API economy, this will change. Banks can provide customer data, analytics and other functionality through an API to trusted partners to deliver new banking and non-banking services to customers. This has already started with Barclays providing open-API access to some of its data – this data is accessible to selected start-up fintechs operating within its Accelerator Programme. In addition, BBVA is providing customers with the option of sharing their account and card payment data with third parties. What types of new service are developed and provided to customers through APIs will depend on the appetite and imagination of the banks themselves; for example:
- Help Customers’ Money Go Further by providing personalised real-time offers triggered by customer activity, alerts, location and time; offer execution services such as switching services following price comparison or purchase of retail offers; give product advice, price comparison and price/deal location services.
- Help Customers Manage Their Money by providing budgeting and expense categorisation, spending analysis (including comparison with peers), warnings of likely overdraft or other bank charges and suggested action, alerts of payments and transfers, and free to use balances.
- Help Customers Save and Borrow Wisely by providing savings prompts and automated savings rules, a view of all investments across FSIs, incorporation of credit offers in real-time purchasing, pay-as-you-go financial services products (e.g., car insurance by the hour).
- Help Customers Grow Their Money by providing account aggregation and optimisation, robo-advice (portfolio allocation based on risk, tax status, savings goals, etc.), video advice, prompts and alerts, ‘impartial’ community advice and other information.
Make it Happen
It is important that technical API development is led by a clear, API-enabled business strategy. Banks must come to see APIs as products in their own right, since the API will increasingly be responsible for customer engagement and revenue generation for the particular use cases they enable. Bank CIOs as well as marketing, digital and CX officers must come together to identify the best value-creation opportunities. These opportunities can be defined as use cases and can be tested via prototypes.
No matter what API use cases are selected, a progressive programme for API value creation will require a number of new competencies and capabilities. The development of these may require new technology partners, some new recruitment, revised training and cultural change.
Here are a few examples:
- Investment in API platform software and portals
- API product management and governance skills
- A banking culture that increasingly looks outside, and encourages openness and co-creation across the bank, its partners and customers
- A new product and service creation process that is iterative, based upon prototype development and minimum viable products
- A changing focus on what security now means as data is exposed to partners, sometimes competitors and outside developers
- A two-speed approach to IT, one that keeps the lights on and one that focuses on developing new business propositions, ecosystem partners and supporting technology platforms
- New revenue-sharing models in addition to standard banking products and services
- An adaptive marketing approach that now looks at new proposition creation both inside and outside banking, the development and management of an ecosystem of new partners and the creation of new revenue sharing models
If all of the above still seems like many, many years away, it is worth bearing in mind that the upcoming PSD2 banking regulation will make it possible for a customer’s account service provider (ASP) to present a consolidated view of each customer’s entire financial portfolio across banks. What if that ASP then uses that information to develop new services such as alerting a customer that a savings account or credit card they have is no longer competitive or that he is overpaying for his loan. What if the ASP actually then modelled the savings the customer could realise if they switched financial institutions and what if they made that switching seamless for the customer. Do banks want to occupy this space? If not, fintechs, tech companies and other e-commerce players may well do so, disintermediating the bank from its customers and intensifying competition.