I recently wrote about how APIs (Application Programming Interfaces) enable innovation. APIs make it possible for the products and services of one company to connect with those of another for increased value. By opening its data, functionality and services to third-party developers, a business can expand its innovation capability to comprise an entire ecosystem of partners.
When it comes to banking, the Open Business model enabled by APIs promises much. We’ve found that banks that embrace Open Banking will profit from a potential revenue uplift of 20 percent, whereas those failing to do so risk losing 30 percent to disruptive industry players by 2020.
Open Banking Drivers
One of the reasons for this is the now well-understood force of digital disruption. Customers today increasingly choose services that provide the best experiences-regardless of whether these are offered by traditional financial sector players or not. Significantly, digital disruptors are being assisted by new banking regulations that aim to increase competition, innovation and transparency; such as the Directive on Payment Services (PSD) and the Open Banking Standard.
At the core of these directives is the need for banks to grant third-party providers access to customer accounts, payments, product data and other data through APIs. Non-compliance is not an option and the banking industry is having to embrace an ecosystem-based operating model in contrast to what is traditionally a guarded and siloed industry.
This change can be enabled by APIs. As increasing numbers of Open APIs are published, customers will benefit from the experiences and outcomes that are developed by third parties and powered by banks. Open APIs will therefore push banking to other industries, platforms and businesses, resulting in a growth of the banking ecosystem.
The Evolution of Banking
Open business is going to be the new channel through which banks engage with the digital world, and API-based open banking is a development on par with the emergence of the online channel. In this new banking paradigm, customers will be able to interact with their financial services everywhere, rather than solely through the bank’s owned channels.
This is transformational change: Open API business models will enable banks to move beyond simple utility service provision to becoming central to the lives of their customers. This will involve the delivery of an entirely new class of banking service. Imagine, for example, an "all-of-money assistant" that helps you optimise your cash-flow, spend efficiently and meet your financial goals across every bank account and credit card you own. Or what about an automated insurance platform that guarantees the best deal by harnessing APIs from insurance companies across the market in real-time, comparing insurance quotes, then automatically signing you up to the best deal?
And it’s not just banking services that are affected: by licensing data to approved third parties, banks will be able to open ancillary revenue streams. We’re already seeing new shared data services in other sectors that are helping companies monetise their data while building brand "stickiness". Uber, for example, has just launched Movement, which provide anonymised access to its data for use in urban planning.
Of course, anonymisation and security will be critical for such services to work in open banking. However, from a regulatory perspective the EU has effectively given such services the green light by ruling that data can be stored and shared provided it’s sufficiently aggregated so that individual data paths cannot be reconstituted. There’s a real opportunity here for fast-moving banks to monetise their data ahead of competitors.
The Future is Here
Many banks are taking this path today. Accenture has worked with several incumbent banks to open their business and drive innovation. In one case, a large retail and investment bank wanted to launch an external API offering and create an internal API platform to improve the pace of innovation and accelerate its digital transformation.
We worked closely with the bank’s business owners to identify and prioritise an API development roadmap and recommend changes in the architecture and design of back-end services for streamlining API exposure. More than 30 APIs were designed and deployed within first 12 weeks of the programme, building up to an API development velocity of 25- 30 APIs a month.
The Path Forward
The message to incumbent banks is clear. You need to adapt fast to take on new competitors and provide the innovative services customers demand. Open Banking offers the single best method of achieving this aim. However, banks cannot expect to suddenly be able to support the API/ecosystem approach. Preparation is everything: first ensure you have the correct building blocks in place internally before you open your operations through APIs. Banks can make this transition effectively will become the market leaders for the digital age.