At this year’s Sibos conference, you participated in a panel discussion on Application Program Interfaces, also known as APIs. What exactly are APIs?
The simplest way to think about APIs is as behind-the-scenes access to data or services offered by one provider through another provider’s platform or application. You could be ordering a pizza on a pizza app, for example, and be offered a button to download a film from Netflix to watch while you wait for your pizza to be delivered.
APIs are not a new concept. Why do banks need to pay particular attention to them now?
Yes, APIs have been around for a long time. Some industries, such as telecommunications, hospitality and transportation, have used them for quite some time to improve their customer service. The extraordinary growth of the digital ecosystem is compelling banks to embrace APIs as a new way to connect with customers.
It means that banks can be competitive in offering consumers access to financial services where and when they need them, as opposed to customers having to hunt for them.
Banks are recognizing both the opportunity and the threat. By providing services at the center of the digital ecosystem with broader, more open business partnerships, banks could increase their operating income up to 30 percent, their customer base up to 10 percent and their customer interactions up to 250 percent.1 There are also some new regulations, such as the European Union’s revised Payment Services Directive (PSD2) and the United Kingdom's Open Banking Working Group, that are requiring banks to use APIs to open up specified data and transactions to certain third-party providers. Banks in the United Kingdom could lose up to 43 percent of their payments-based revenues by 2020 as a result of PSD2-driven changes, based on Accenture research.2
The list of potential benefits of APIs for banks is very long. What are some of the biggest benefits?
Most importantly, APIs allow banks to participate in and gain advantages of the digital economy while staying relevant to customers. Customers can know their financial profile at any time and from anywhere, in ways that match how they want to run their lives. For example, it’s valuable when a consumer shopping for items on a retail app can click to find out how much money he or she has in a bank account or credit available on a bank card.
Also significant is the app developer’s perspective. Bank APIs enable developers to more easily create the customer experiences they want to deliver by embedding API codes wherever they are needed along the customer experience. PayPal is a good example of how the easy use of APIs can create a better online card checkout process.
Through APIs, banks can extend and offer their core services outside traditional banking environments to wherever customers work and play. Some banks are already allowing their customers to contact them using the Facebook Messenger app, which increases brand value for the bank. In effect, third parties like Facebook can become part of the bank’s distribution network and create value from the outside in.
Can you share some examples of how APIs add value to the payments function?
Sure. Just in the area of customer insight, it is interesting how many consumers want to know their bank account balance right before they make a payment. According to a U.S. Federal Reserve System survey, 62 percent of mobile banking users checked their account balance on their phone before making a large purchase in the 12 months prior to the 2016 survey; half of them decided not to purchase an item as a result of their account balance or credit limit. It allows customers to make better decisions about their purchases and finances right at the point of purchase.
Unlike debit cards, APIs also allow customers to pay directly from their bank accounts without passing through the credit card network or sharing card credential details with third parties. In effect, merchants provide their credentials. The API method is a much more secure and safer transaction proposition for all participants.
Then, there is the overall customer experience. With APIs, developers can vary the checkout process based on the customer’s specific purchase and other buying preferences to make the experience faster, simpler and more intuitive.
Accenture helps banks develop and implement their API plans. Based on your own experience, what must banks do to ultimately make APIs work?
Banks will need to master three critical factors that power APIs:
Implement a new business model enabled by APIs. Rather than simply making their current models digital, banks should develop new ways of interacting with customers. They will need to consider how to project themselves outside of the bank and entice others to use their APIs. Again, PayPal’s digital model is a good example. Its APIs are open, easy to use and waiting for merchants to pick them up to create their own innovation and develop their own digital models. Without a sales force or help desk support, PayPal increased its number of active merchant accounts from 10 million to 14.5 million over the past 12 months.3
Select and operate a robust API management platform. This is critical as the number of database calls to and from banks’ back-end systems through APIs could be enormous. Consider that 35 percent of mobile banking app consumers access the app once a day or more; 84 percent check once a week or more.4 Banks will need a robust API platform to manage the volume of traffic traversing APIs and also provide the analytics for optimum usability, efficiency and effectiveness. Most banks will need to build or buy an API management gateway to facilitate secure access with partners and developers while also providing strong security controls.
Run with a Representational State Transfer (RESTful) IT architecture. APIs exist for developers’ use; without this, an API has no value. Recognizable, easy-to-use, documented APIs have the most uptake among developers. A RESTful IT architecture provides the high scalability, simplicity and flexibility that banks can draw on to accelerate creation and use of new APIs cost-effectively, and to make enterprise IT systems, services and data easy to consume. This can be done without hard standards (other than those for security and authentication), opting instead for rules and principles for making APIs straightforward to use and understand.