How will the increased use of open APIs shape the financial services landscape, and how will it impact different market players, both in the short- and long-term?
The API Economy is a set of business models and channels based on secure access to functionality and exchange of data between businesses. It looks likely to revolutionise how data and services are distributed in many industries over the long term, including banking. This type of radical change will change business plans, patterns of behaviour and market positions in the banking industry. In the longer term, the API Economy also seems to be asking bankers to reflect on their core strategic perspective i.e. “what business are you in?”
In the shorter term, banks will struggle to respond to the API Economy. Banking is a mature industry with many monolithic systems and divisional organisational structures. Open APIs are quite different to own-brand products in mature industries. The monetisation goals for Open APIs will have to reconcile with the goals of own-brand products. Mature industries with very established patterns of pursuing profits at divisional level will struggle to see where they will capture value from Open APIs. Finance teams in mature and profitable industries will prefer specific and tangible revenue strategies from Open APIs rather than strategies that promise market influence and market profile.
Which activities should banks be prioritising, in the wake of open banking?
All mature service businesses need to prioritise investments to develop modular software with a microservices architecture. Under-investment by mature firms in Services Oriented Architecture will act as a constraint to their entry into the API Economy.
To be successful in the technical challenge, banks also need to look at the sociological factors in organisational design. If firms in mature industries ignore these sociological factors, they are unlikely to succeed. Older businesses that were not born in the networked economy can be excessively focused on the downside risk of data travelling out to third-parties. Non-technical teams in mature industries with a business development responsibility need to be trained in API Product Management and API Monetisation methods. Understanding and managing the relationship with a community of external API Developers is an entirely new discipline for a mature business. If commercial teams in banks try to repel substitute products from their ecosystem, they will inhibit the development of complement products. Employees in all mature businesses will need role clarity to act and thrive within new organisational directions.