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4 charts on the state of banking APIs

The rapid speed of technological advances are forcing banks to partner with third parties to be able to keep up with customer demand. Many banks are opening up through private and public APIs to streamline operations and increase innovation. The trend, often referred to as “the platformification of banking” is gaining speed.

In Europe, PSD2 regulation, which goes into effect January 2018, will require banks to provide open access to customer, transaction and payment information via APIs. In the UK, the Open Banking Working Group has recommended the creation of an Open Banking Standard that will make it possible for banking data to be shared and used securely. Banks are getting their API strategies in order.

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APIs can assist banks with comprehensive digital transformation of the entire organization. Forrester lists four types of APIs. Internal APIs help banks’ internal systems to “talk” to each other more easily. Partner APIs enable highly customized integrations with select business partners, usually for a specific business process. Public APIs give access to a larger community of developers to increase the speed of innovation. Lastly, Product APIs add value to products by incorporating them into wider ecosystems.

API adoption is gaining momentum, with many banks in the process of API implementation.

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The rise of APIs can also be seen in API request data from Xignite, a financial API company.

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APIs give companies agility and speed they might not otherwise have. By opening up to a bigger pool of developers, a company can innovate faster, cheaper and more aligned to the needs of its customer base than if developed in-house. By incorporating a product into an ecosystem, the product becomes stickier and loyalty increases.

Most major technology companies, like Facebook, Slack, Uber, Google, and Netflix, use APIs as a pillar of their strategies. Salesforce.com generates 50 percent of its revenues through APIs. Ebay generates 60 percent of its revenues through APIs and Expedia generates 90 percent of its revenues through APIs, according to apigee, an API company.

Though banks are starting to explore the use of APIs, they are still far behind other industries. In apigee’s State of API’s 2016 report, financial services do not even make it to the legend.

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If, to quote Chris Skinner, “a bank is just a technology company trying to keep up,” it looks like banks still have a long way to go.

 

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What Bank of America’s race to cardless ATMs says about the future of banking

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It started on Monday when JPMorgan Chase announced it would be introducing card-free ATMs this year. The first generation of these new ATMs, according to a bank spokesperson, will give customers the ability to access the machine via an access code found on their Chase mobile app.

Not to be outdone, Bank of America countered today that they, too, would be rolling out a series of new ATMs that enable clients of the bank to use their phones to withdraw cash or complete other tasks using their cellphones instead of their bank cards.

The bank, according to CNBC, acknowledged the initiative to introduce cardless ATMs in the US with an initial pilot program in Northern California and a few other big cities with a broader launch expected for later in 2016.

War on cash? ATM growth and usage

Total Global Volume of Cash Withdrawals (billions), 2010-2020
Source: Global ATM Market and Forecasts to 2020

For the most part, this is part of larger upgrade cycle underway at most banks around the world. With the exception of China, which according to the Global ATM Market and Forecasts to 2020, grew its domestic ATM footprint by 18% in 2016, most mature economies are seeing flat growth to contraction in their number of ATMs.

But the growth of ATM machines is just part of the picture — while the number of machines may be stabilizing, they’re being used more frequently. ATM usage is seeing a pickup as global ATM cash withdrawal volumes grew by 7% in 2014 with a total of 92 billion withdrawals made. By most measures, with all the talk of bitcoin, blockchain, and other cryptocurrencies, demand for cash is ostensibly strong and in fact, growing.

That’s a far cry from the commentary coming out of Davos as world and business leaders converged on the city situated in the Swiss Alps to talk about the future. Deutsche Bank CEO, John Cryan forecasted the demise of cash by the end of this decade. “Cash I think in ten years time probably won’t (exist). There is no need for it, it is terribly inefficient and expensive,” he said in a group dedicated to discussing fintech.

Banks of the (near) future

The introduction of new ATM technologies at Bank of America and Chase appears to come at the expense of physical branches. Bank of America is on an ATM upgrade cycle as it pares back its own brick-and-mortar locations. Bank of America grew its ATM network by 1% in 2015 to 16038 while its retail locations were scaled back 2.65% to under 4800 in the same time period. Smarter ATMs with more consumer-focused technology enable banks to deliver high quality service with fewer in-person tellers. Indeed, Chase now does more transactions each month via ATMs than with tellers.

Growth in the ATM business is happening amidst the background of an industry merger of two of the largest players in the ATM industry. Diebold’s revenues are expected to just about double after it closes the transaction to acquire its German competitor, Wincor Nixdorf. The deal is valued at $2 billion and is the largest in Diebold’s 156-year history. But the acquisition is more than just about creating a global war chest, according to Diebold’s CEO, Andy Mattes. He explained to Fortune that the new ATMs his company is developing are no longer “cash and dash” machines. Instead, they’re able to “connect the physical worlds of cash with the digital worlds of cash”. ATMs, like the kinds that Chase and Bank America are rolling out, are able to conduct 90% of the jobs traditionally done by tellers.

That resonates well with banks’ younger clientele who are digital natives and comfortable using their smartphones for most financial transactions. And surprisingly, of all demographic groups in the US, millennials actually have the highest usage of cash. So, while the future may or may not be cashless, the present is definitely cardless.

 

Photo credit: pennuja via Visualhunt.com / CC BY