Open APIs will be essential for banks’ survival — whether it’s for fulfilling their customers’ expectations, meeting them in different channels or changing their business models.
Open APIs, or application programming interfaces, are what allow banks to share data with third party apps and service providers — whether it’s a nonbank provider of financial services like Digit or Acorns, or a provider of nonbank services that uses bank information for payments or rewards schemes — that customers like to have and use.
But so far banks’ exploration into open APIs has been about one-off agreements for the most part. As banks warm to that kind of external collaboration, however, it’s not a bad time to start thinking about the bigger picture, Capgemini found in its Retail Banking Report, published this week.
“The goal should be less about linking up with a series of independently-operated web pages, and more about taking part in an ecosystem of apps and APIs that support broad synergies between companies and consumers,” according to the report.
Here are five charts that show how how banks are thinking about APIs in their digital strategy today and how they think it could play out in the future.
Large banks are using APIs to improve their omnichannel experience
Of 112 large banks, those with more than $50 billion in assets, surveyed by Celent this February, 56 percent indicated that they would probably expose open APIs as part of their strategy to deliver an omnichannel experience. That point proved more popular than the other six options: 55 percent indicated they would migrate to a single digital technology stack; 50 percent indicated they would replace ATM software along with branch teller or platform sales systems. A large bank with a large budget can make many choices.
Just 26 percent of the mid-sized banks, those with under $50 billion in assets, indicated they would pursue an open API strategy (compared to the 50 percent that indicated they would migrate to a single digital channel tech stack); as did 22 percent of small banks, those with less than $1 billion in assets.
It’s important to note, however, that as banks of all asset classes are still trying to nail omnichannel, according to PwC, customers may already have moved beyond that. In 2012, 57 percent of customers indicated they prefer banking by both digital channels as well as human interactions, but that number has dropped to 45 percent today. In the same period, customer engagement with branches and call centers fell from 15 percent to 10 percent while people who use all digital channels — mobile devices, computers and tablets — to interact with the bank grew from 27 percent to 46 percent. (PwC is dubbing this new customer set the “omni-digital” customers.)
Banks aren’t putting up walls, but they have their doubts
A lot of the narrative today in fintech is about bank-startup partnerships and collaborations. Don’t be fooled, banks still want to maintain the status quo — in 2015, 48 percent of banks saw third parties as more of a threat than an opportunity, compared to 31 percent today; and 60 percent felt the need to tackle nonbank competition, compared to 54 percent today — but their change in attitude toward startups is loud and clear. In 2015 35 percent were ready to invest in an API platform, now almost half are; then, 30 percent said building an open banking platform was high up on the list of priorities and today more than half agree.
In the last year, Citibank, BBVA and Capital One, to name a few, have opened their APIs to third-party developers.
Others are doing this on a case-by-case basis. JPMorgan Chase and Wells Fargo have data sharing agreements with Intuit that employ APIs in order to share customer data more safely. Finicity recently signed a similar deal with Wells Fargo, as did Xero with Wells, Silicon Valley Bank and most recently, Capital One.
However, banks are still highly regulated, highly scrutinized businesses with a lot on the line. So it’s unsurprising that data security and privacy still raise a lot of red flags for banks thinking about opening an API platform. When Capgemini asked fintech startups for their concerns, their answers didn’t really differ from the banks’.
Banking as a platform
Most banks (56.5 percent) believe banks will remain the main channel for banking products and services (incidentally, so do 55 percent of fintech startups). But Capgemini said if it stays on that path could struggle to match competitors on time to market, according to its Retail Banking Report. Most banks (53.8 percent) also believe they’ll evolve into platforms that support cross industry players that tap into core banking systems, kind of like Amazon.
“An open banking model similarly presents new opportunities for creating and distributing products,” the report says. “Traditionally, banks have owned the process of building and selling products from end to end, and the only entity responsible for adding value to a product has been the bank itself. An open banking model turns this approach on its head… Collectively, these partners would give rise to much more creativity than the bank could muster on its own.”