Many within the banking industry, especially those at board level, are understandably concerned about APIs and the possible effect they may have on their business. By giving third-parties access to aggregated and individual customer data through APIs, banks are opening themselves up to a potentially significant security risk and the costs of meeting the regulatory compliance requirements.
Is Fear Holding Your Bank Back?
While some of the concerns surrounding APIs are legitimate, similar concerns are raised with any new application of technology; there were reservations at the thought of technologies such as mobile banking and contactless payment in the not-too-distant past, but these are now taken for granted by both banks and customers.
With the right usage policies, and an appropriate level of investment in infrastructure, these concerns can be allayed, and as we’ll soon see, there are substantial business benefits to embracing them. The advantages that APIs offer mean that it is essential for banks that CIOs help other key decision makers to understand the possibilities that they unlock.
Increased Market Share
By allowing 3rd party businesses to access bank data, clients can potentially access product and other data through a wide range of websites, including social media. The most obvious applications for this are product-comparison websites that will open up bank services to a wide range of customers.
Banks can also access new markets and business models, like E*Trade, which allow developers to create their own trading apps using E*Trade APIs. An example of this is ionDESK, an app that has been created to allow traders to practice making trades using live data as well as performing research, placing live trades, and placing automatic trades using robots and algorithms. By making use of data through APIs, apps like ionDESK help draw in customers for banks.
Turbocharge Your Development
Once APIs are in place, banks can run internal and external campaigns to generate ideas for new products and solutions. A great example of this was the 2016 ING Hackathon, which featured teams of students competing to produce innovative apps over a period of just 48 hours.
Crowdsourcing ideas like this can open up opportunities that your teams would never have thought of before. It can also be an excellent way to pick up the next great talents to join your business, or to start building strong relationships with 3rd-party developers.
Using APIs can also dramatically decrease both the time and cost of developing new products. This allows a more responsive approach to customer needs and the opportunity to create more specialized apps for specific needs that wouldn’t otherwise have been financially viable.
Take Action Today
With impending regulations, such as PSD2, shifting the industry towards open banking, it is recommended that banks start implementing APIs immediately. A clear action plan for a forward-thinking CIO would include:
- Address the security concerns of other senior decision-makers and establish the business case for using APIs, drawing attention to the potential for increased profit, lowered development cost, and improved user experience.
- Start providing APIs for data that is already made publically available, such as branch and ATM locations, as a way of testing potential and potentially expanding market reach.
- Encourage internal and external development through hackathons to encourage ideas. Start building relationships with 3rd-party developers ready for future applications.
With the EU Payment Services Directive (PSD2) published and set to go into effect from January 2018, banks will have to provide certain service providers with access to customer details. The banks that get onboard with APIs will benefit from the most innovative and profitable implementations allowed by these new rules.
In my next blog post, I will discuss PSD2 and how it will create new business and operating models for Banks.back