When the world moves away from Mobile First to API First, it is always an interesting phenomenon to study. There was a time esp in Financial Services; there was rush across all Banks, Financial Institutions across the globe to launch mobile apps across products. During early 2010, Banks were rolling out mobile applications across customer segments and even across products, be it deposits, loans, or even investment. Entire technology strategy or better calling Digital strategy focused on mobility solutions for customers and the workforce. Business alignment to technology was primarily limited to making services available on mobile applications. There lay a challenge when Banks/FIs struggled to put a real digital strategy in line with their business strategy.
Though Fintechs have made a formal entry into the Indian ecosystem longtime back around 2010, a significant influx happened somewhere during 2015-17. During this period, Yes Bank and RBL Bank launched their developer portal and announced a set of APIs available for the Fintech ecosystem. This was the same phenomenon on the other side of the world where Banks started experimenting with APIs and opening up to share APIs with Fintechs. 2018 was when the UK and European Union formally launched regulations on Open Banking & PSD2, which pushed the opening up of APIs by Bank.
With the opening of APIs, the world moves over from the Mobile First approach to the API First approach during this period. But it was not only Banks/FIs going through the transition, but the whole of API economy was taking shape through the emergence of UBER, Airbnb, and many other similar startups working fully on APIs. The banking world wakes up to the whole API enabled banking or on more substantial scale Open Banking. The business started taking note of APIs’ role and kind of business models that could be built around APIs.
Transformation Driven by APIs: As the world is seeing more on Open Banking, APIs have been truly transforming Banking and financial services. APIs have been at the center of this transition and powering a new wave of transformation. We looked at some of the transformation driven through APIs.
The emergence of new business models:
APIs have provided opportunities to Bank or Financial institutions to work with startups and build new business models. Within the banking ecosystem, Open Banking has been a significant transformation driven by APIs.
Traditionally, B2B or B2C business models have been prominent, and this is going through a transition with the evolution of new business models like B2B2C or B2B2B and could be any other combination. This has only been possible through the development of APIs and opening of same for third parties to consume. APIs have ensured a platform for businesses to collaborate and evaluate alternate revenue models. With the technology available such as API Gateway, Banks & FIs can manage registration for APIs and partners while exposing APIs for their financial services.
Though the business approach has moved to API first, mobility and internet channels remain a key interface for banks and partners to reach out to customers. APIs have enabled the entire mobile application development process easier and faster. Banks have been able to build full-fledged Digital banks on top of banking because of the availability of APIs at their disposal. Examples like Kotak 811, Digi Bank by DBS or Yono from SBI, and Marcus from Goldman Sachs are new sets of Digital Banks.
APIs have helped banks and FIs develop mobile applications powered by APIs for completely new business models, plan wider customer reach, better customer engagement etc. Not only that, but APIs have also made the entire omnichannel experience truly omnichannel as APIs manage transactions & data sets instead of interfaces.
APIs have made the internal development process and management much easier and efficient. This led to drive Innovation at a faster pace for Banks as well as Fintechs. Once any financial services or business functions have been developed and made available for other developers in the form of APIs, it becomes easier for others to consume and save time. APIs have truly driven agility in the development process, and greatly improved change management process & time to go market for a new product. For example, suppose Bank has developed new variant of Fixed Deposit and made APIs available for it. In that case, it can be made available from any channel or any partner in much lesser time.
Platform and API Aggregator Model:
It was a long time back when Expedia transformed into a platform powered by APIs and made services available to other similar sets of service providers. APIs have provided the business model of an aggregator and making all financial services available to third parties for consumption. APIs through a platform approach allowed third-parties to develop & deploy solutions on top of it. It also ensured superior Partner Enablement and drive Innovation through Open Data set available through APIs.
Plaid and Fincity made business models around API aggregator and subsequently bought over by VISA & Mastercard respectively because of above business benefits. The other notable such platforms are Railsbank, Tink, Synapse, and many more. On India side story on the platform, Setu, Cashfree, Zeta, and others, enabling various startups in India through integration with its APIs stack.
Due to massive transformation capabilities, APIs have become central to Digital Strategy and the whole business strategy. APIs have been helping businesses across the value chain from customer acquisition to onboarding while managing retention and expansion of services.