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