By Ada Westerinen, Director, Solution Engineering, MuleSoft

Expectations for frictionless digital experiences have never been higher, as global lockdowns have made us grow more accustomed to carrying out transactions online. For banks, customer experience has become the new battleground on which they compete, as the ability to offer more sophisticated digital services becomes key to success. This shows no sign of changing, so we can only expect that digital banking experiences will get better and better. However, for banks that rely on legacy IT environments, realising these ambitions could be a challenge, calling for a fundamental rethink of how their operating models work.

Adopting a digital-ready strategy

To lay a foundation for this new approach, banks will need to adopt a ‘digital-ready culture.’ This emphasises a willingness to continually invest in new service delivery models to meet and serve customers through digital channels. To enhance the impact of these efforts even further, many will begin looking for new ways to make the customer experience as frictionless as possible. Automation will be a particular focus, driven by the use of technologies like AI-enabled chatbots and capabilities such as straight-through loans processing. The principles behind open banking will also become more pertinent than ever, as banks look to harness the power of APIs and third-party capabilities to find new, better ways of serving their customers.

As the momentum of this API-led innovation accelerates, banks will take their first steps towards an ‘ecosystem mindset’, whereby they re-imagine their traditional business model in favour of one where their services are offered as a platform. In this approach, banks white label their services and digital capabilities for others within their broader ecosystem to use. A property platform, for instance, might make use of a bank’s mortgage application capability to enable customers to apply for a loan directly from within the app. In this way, banks will be able to support better digital experiences and reach more customers through indirect channels, rather than ‘owning’ every customer relationship in the traditional sense.

However, making all this work in practice is often far from straightforward. The reality is that banks’ IT operating models aren’t typically geared towards customer experience innovation or third-party collaboration. All too often, banking IT is a complicated mix of legacy systems, where valuable customer data is scattered across disparate silos. This makes it difficult for banks to draw the right customer data sets together to deliver more personalised experiences, both directly and indirectly, through collaboration with others. In today’s environment, banks’ success rests on their ability to connect these data silos and third party information, and make it readily available for any part of the organisation. This is a core requirement for building a 360-degree view of every customer, and being able to better understand and meet their needs to improve profitability with data analytics and AI-powered insights.

An API-led future

To navigate these challenges, banks have begun to experiment with API-led integration. An API strategy can play a key role in breaking down the silos that restrict banks from using their data to create personalised customer experiences and collaborate more effectively with others. By placing APIs in front of each system they need to draw data from, banks can create a flexible integration layer that allows them to bring it all together effortlessly to create a single view of the customer.

In addition to supporting more personalised digital services, this also enables banks to become more composable, so they can accelerate customer experience innovation. This gives them the ability to create new digital services more rapidly both internally and through external collaboration. By using APIs, banks can expose their IT assets as a network of reusable capabilities that others can discover and tap into. A third-party wishing to make use of a certain banking capability can simply plug the bank’s API into their own product or service, to create a better, more connected customer experience. The more that banks are able to open themselves up in this manner, the more opportunities they have to join new value chains, unlocking more revenue as a result.

What is common for all of these trends? The ability to quickly develop new offerings and capabilities, reach new audiences, fend off digital competition and ultimately build ecosystems, all of which calls for banks to have a platform mindset, both in their IT and business approach. The universal connectivity behind this platform approach are APIs, which need to be seen as a strategic ingredient to thrive.

Winning the battle

While this approach may seem like it’s a long way off, we’ve already seen how the theory works in practice. For example, UK-based SME-lender Allica Bank uses APIs to connect its apps, data, and devices, so it can quickly bring together all of its digital capabilities and plug in those of other organisations to create market-leading experiences. Allica’s brokerage portal has been rated the best on the market by its customers, because its API-led approach enables it to draw data from a variety of external sources to speed up the overall lending process dramatically.

With customer expectations for frictionless digital services at an all-time high and continuing to rise, we should expect more banks to strive towards the sort of experience Allica has been able to offer. As a result, APIs will become a crucial cornerstone of banks’ IT strategies, offering the flexibility and agility they need to become ‘digital ready’ and continue to redefine customer expectations and industry standards for connected experiences.