5 Reasons Why the Future of Financial Services Depends on Open APIs

Open APIs (Application Programming Interface) is a term commonly used in the technology industry. Simply put, it enables the transformation of an institution from a complicated web of disconnected systems into an easy-to-use resource. When used effectively, it can hide the complexity of stacks, layers and multi-vendor technologies. Yet, financial services have been slow to embrace this trend. The herculean task of updating archaic systems and processes while meeting the evolving needs of customers prevent the industry from adopting Open APIs. This outdated way of thinking could spell doom for institutions.

The financial industry is at a tipping point between the old world and the new. Banks, Telcos, Retailers and other service providers have three to five years at most to become digitally proficient. If they fail to take action, they risk allowing a new set of competitors to wriggle between them and their customers.

The following list expands on this need for change and highlights the key reasons why Open APIs must be adopted to compete in the future. Our promise is to help your institution develop a broader perspective on APIs and utilize them to address your main challenges. So whether you’re at the stage of considering a less conventional approach or already have a project in mind to stay ahead of the curve, keep reading and check these out.

The Ever-Evolving Customer Expectations

Whether you’re a bank or telco targeting millennials or adults, it’s safe to say you’ve noticed a fundamental shift with your customers.

  • Today’s consumers (especially millennials) demand instant and seamless financial services.
  • Customers don’t want to visit branches. They want to act autonomously—wherever, whenever. At home or on vacation, they want to feel connected.
  • We live in a new era of apps and data requiring speed, flexibility and scalability. Businesses that capitalize on the convergence to IoT, Open APIs and Artificial Intelligence will create new user experiences and drive consumer behavior.

Market Maturity

Before long, financial institutions within emerging markets will begin to consolidate and experience aggressive competition to retain and attract new customers. Only the most digitally savvy will survive. Now more than ever, financial services need to deliver more value to end-users and adopt the best practices of mature financial markets. 

  • The GCC and African regions are now adopting solutions with proven track records. Contemporary products such as NFC, barcoding and cryptocurrencies are being implemented and tested as new ways to process transactions.
  • For these solutions to take place, regulatory shifts will occur. As seen in Europe, the Payment Services Directive’s second phase (PSD2) is prompting financial institutions to create and secure Open APIs to grant authorized third-party providers access to their services.
  • In short, the region is becoming a sandbox for change. Initiatives such as DIFC FinTech Hive in the UAE and AUC Incubator in Egypt are living proofs of the steps being taken to foster collaboration between technology providers and financial institutions. 

Speed to Market through Ease of Integration

Haven’t been thinking about digitalization? Now’s the time to start—if you wait, you might be obsolete. Products that were relevant six months ago may not be functional or desirable to today’s customer. Speed can be the differentiator between you and your competition.

  • Riding the digital wave isn’t a one-time deployment—it requires constant updating and optimizing. This can only be achieved through the quick experimentation of various technologies and solutions. Companies need to be nimble.
  • Your platform must be equipped to allow for change and adaptation. Robust platforms are those that are seamless, cloud-based and easily allow new products and services to be deployed to end-users within 4-6 weeks’ time (instead of months). This speed from production to delivery is a revolution in the financial industry.
  • It’s essential you send the right message to the public—your business is using cutting-edge technology with a constant eye on customers’ needs. Partner with innovators, risk-takers and like-minded individuals that share your vision and are designing solutions to problems you haven’t even thought of yet. Banking is no longer a traditional, dated exercise. Today, it’s an immersive experience that requires a multichannel approach. 

Financial Inclusion

Historically, underdeveloped markets have been excluded from the financial world. Various reasons such as poor infrastructure, limited financial resources and connectivity have attributed to this sad reality. Open API’s have not been used to their fullest potential and may be the key to tackle this issue that has long been ignored.

  • Smartphone penetration and technology adoption are rising at an extraordinary rates. Success stories such as AirTel Africa and M-Pesa prove that simple tech is sometimes the best tech.
  • One of the most central tactics to create product stickiness is to make the product more valuable over time. Open API structure will give institutions the simplicity for adding features as customers’ needs expand.
  • Open APIs allows collaboration between telcos, retailers and agents. In emerging markets, where mobile operators are the main enablers of the digital economy, operator APIs are a powerful channel for extended reach and new services. 

Last, but certainly not least… Profit

Beyond the technical benefits, Open APIs drive further profit growth for an institution.

  • Solution providers and fintech companies have accurately identified the “need of the hour” and introduced the SAAS model, with integral traits such as low upfront fees and “we grow as you grow” strategies.
  • Developers know they don’t have to reinvent the wheel. Plugging into existing platforms saves institutions precious resources and enhances the bottom line.
  • By partnering with local tech innovators and attractive start-ups, institutions can introduce some of the most innovative technologies to target new market segments and increase revenue streams.

These are just a few of the compelling reasons to adopt an Open API structure for your business. You can be sure to take a bigger slice of the market if your organization joins the trend. Do you have any others to add? Let us know in the comments.

To read more about our Open API solutions, check out our Solutions page

 

Sources:

https://www.mckinsey.com/industries/financial-services/our-insights/data-sharing-and-Open-banking?cid=soc-web

https://www.mckinsey.com/industries/financial-services/our-insights/strategic-choices-for-banks-in-the-digital-age

https://techcrunch.com/2016/05/21/the-rise-of-apis/