By Danny Healy, financial technology evangelist, MuleSoft
We’re fast approaching a complete transformation in the way we consume financial services. In the future, the bank as we know it won’t define how its services are delivered, the demands and expectations of customers will. We as customers don’t want to be tied down to a single bank, we want to access financial services where we want, when we want, and how we want.
This follows the landmark open banking movement and PSD2 in Europe, which have forced banks towards being more customer-centric. While banks may have initially seen open banking as a threat, this shift is actually an excellent opportunity for them to deliver more value to customers.
Creating a marketplace
As with any major industry today, finance is built on data. Data is becoming the ‘new oil’, creating a huge opportunity for banks to unlock new sources of revenue if they can build highly personalised customer experiences in collaboration with other banks and service providers. PSD2 and open banking provide the spark for banks to collaborate, prompting them to develop APIs that open up their business capabilities and services for others to tap into. The more open that banks become, the more opportunities they have to join new value chains. As such, viewing open banking as a compliance exercise with the goal of ticking a box is unhelpful. Banks should see open banking as the basis for successful digital transformation.
Essentially, open banking is an opportunity for banks to become curators of financial services, establishing a marketplace in which customers and providers can come to select the best products at the right price. Just as more wealth was able to flow between Europe and Asia as the historic Silk Roads extended further east and west, banks can ensure that more revenue flows through their marketplaces by building reusable APIs that connect to third parties. HSBC, for example, was one of the first UK banks to realise this vision with the release of its Connected Money app, bringing in data from more than 20 rival banks to create a hub from which customers can manage all their bank accounts. More recently, NatWest began triallingMimo, a virtual personal assistant that uses open banking APIs and artificial intelligence (AI) to help customers switch to better insurance and utilities deals.
Creating new opportunities
Success in this new era rests on a re-imagined bank. If a bank wants to position itself as a digital marketplace where consumers can come to satisfy any financial requirement, it needs to re-imagine its business as a platform. This is where the API comes in. Banks need to unbundle and repackage their digital assets as a discrete set of capabilities exposed via APIs. With this approach, every service, process and digital capability within the bank is ‘productised’ and discoverable to others.
This model will naturally begin to create what is known as an application network, creating a digital Silk Road paved with applications, data and devices, all connected via APIs. This makes every asset on the network pluggable and reusable for any team that requires them, even for third parties outside of the bank’s four walls. As a result, the application network lays the perfect foundation for rapid innovation and greater collaboration between banks, fintechs and other service providers, thereby future-proofing banks for success in the years ahead.
The future of financial services
By embracing the application network mindset, traditional banks can behave more like Silicon Valley start-ups, creating new revenue channels by sharing their core banking capabilities and customer base with authorised innovation partners. Mastercard, for example, has turned many of its core services into a platform of APIs and is building an ecosystem around its capabilities. The Mastercard Travel Recommender enables travel agents and transport providers to access customer spending patterns through APIs, offering customers targeted recommendations for restaurants, attractions and activities based on their previous behaviour.
These new opportunities can have a huge impact on banks’ bottom-lines. Recent research found that 36% of organisations with APIs are generating more than 25% of their revenue through those APIs. This shows that APIs will play a central role in enabling the bank of the future, providing a positive catalyst to drive this new business model built on openness and customer choice.
As banks take their first steps toward this vision, it’s critical that they understand going it alone will not deliver value for customers and may see those customers leaving altogether for a nimbler competitor. However, there are huge gains to be made for those brave enough to reimagine their business as a platform and embrace the change that lies ahead. These gains will only be achieved if traditional banks adopt an API-centric mindset that accelerates integration and innovation and provides a seamless customer experience. Unlocking data through APIs and an application network is the best way to stay ahead of the pack as the pace quickens in the race to become the bank of the future.