The financial services world is witnessing a ‘digital switch’ to omnipresent service experiences, all triggered by application programming interfaces (APIs) and open banking.
Over the next five to 10 years, when a customer enters a mall, instead of using a credit card a personalised credit offer coupled and discount will be given automatically. Everything will be enabled by APIs, around location tracking and data from past buying behaviour. A customer will be able to ask Siri whether he/she can afford the new driverless car; their deposit balance will be checked and – in real-time – an appropriate instalment plan for a car loan offered.
Banks will be irrelevant if they do not have a strong API strategy to integrate and deliver data to these service layers. Not being embedded into these digital service experiences, devices and user interfaces will simply mean being ousted out of the consumer ecosystem.
In a 2017 Open API Survey conducted by Oracle, the top three drivers for open API adoption given by respondents were the need for real-time service experiences (47%), to use banking as a platform (40%) and regulatory push (21%).
Figure 1: Key drivers for open banking
With the European Union’s second Payment Services Directive (PSD2) due to betake effect in January 2018, it is hoped that PSD2 will create a level playing field between banks and third party providers, ensuring that banks are not left behind.
From fintechs to techfins
In addition to forward-looking banks and regulators, open banking has gained momentum with non-banks leading the charge. Fintech start-ups and financial data aggregators such as Mint are looking to initiate payments directly. Neobanks like Fidor and Mondo are collaborating with third party developers and techfin giants including Tencent, Ant Financial and GAFA (Google, Apple, Facebook, Amazon) are all vying to provide payments, lending or other financial services.
These trends spell trouble for any bank that is lagging or unable to make the ‘digital switch’ fast enough.
Reimagining the customer journey with customertech
Recently, Piyush Gupta, CEO of DBS shared his insight on the digital reinvention of an Asian bank. His view is that applying digital “lipstick” on the front-end is not sufficient if one is to stay ahead.
Many banks have beautiful front-end applications, but the back-end processes are still manual. Forms are still printed out and shipped out to the different departments. There is a pressing need for banks to digitalise end-to-end, become API-enabled and open.
To revise banks’ architecture around the customer with ‘customertech’ means creating what attracts, retains and delights the customer. Banks need to be embedded in the customer journey across devices and interfaces, responding to the customer at the right moment and reinforcing products only when they add value.
No customer wants to put their life on hold while seeking advice from a bank. For the business traveller, it means that prior to their trip, he or she wants to know the best currency conversion and travel insurance options available.
Customers fully expect to be delivered the right services at their fingertips friction-free. By adding value, banks can avoid being a commodity service provider and move to a new approach in deciding how best to provide service to the customer
Breaking into the Millennial digital decision-making ecosystem
Millennials are the largest consumer base for banks, as measured by having the highest share of wallet with their primary bank, with financial power that is only expected to grow.
In a recent Millennial Migration Report, 60% of those surveyed viewed banks as a safe place to keep money, but not so for managing personal finances (31%), or lifestyle needs (9%). Banks have become less relevant, whether it be for saving for a vacation, buying a car or even daily shopping and budgeting.
Capitalising on the trust equity
As Figure 2 shows, while 88% of Millennials viewed banks as the most trusted source of holding funds and providing advice, non-bank transaction modes like PayPal, mobile wallets and peer-to-peer (P2P) payment platforms are quickly being adopted.
Figure 2: Non-bank options favoured by Millennials
By recognising the opportunities hidden in data behind spending patterns and capitalising on the trust equity, banks can design revenue generating propositions that enable Millennials to make decisions easily and seamlessly, without leaving a banks’ digital ecosystem.
Crafting strategies for new revenue streams
Banks need to treat APIs not just as a technology interface or compliance requirement but a revenue generator.
Including API developers as part of their ecosystem helps garner the innovative spirit of a broader group of people, outside of the corporate walls of the bank. This would benefit the bank’s customers by:
• Providing more personalised financial advice;
• Giving a unified view of all bank accounts using a single banking app.
• Making comparisons easy – the ability to choose the most ideal banking product; and
• Giving customers more control over funds to manage cashflows better and avoid overdrafts.
Preparing for an API-led, open banking future
Moving to the open API economy is an opportunity to deliver superior value propositions.
A successful API programme hinges on the support from different business stakeholders, an enterprise-wide team who will look at processes from a ‘customer in’ perspective. This ensures a progressive buildup of an API repository without losing sight of the long-term goals.
A long-term monetisation plan, based on innovative business and revenue models, should be the cornerstone of an API initiative.
APIs as such, are destined to assume a central role as banks review their operational models, and revamp them across business divisions and product lines.
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