Banks As Platforms: API Strategy for Banks and Fintechs
We are constantly monitoring and discussing the financial industry landscape, examining the mounting pressures arising from regulatory changes, like the CFPB, or advancements in technology. Emerging fintech competitors and shifting customer expectations are also factors driving us to explore the advantages of an API strategy.
Let’s explore some of the essential Banking API strategies that can steer banks and fintech companies toward success in this transformative era.
Platforming Shift for Banks and Fintechs
The contemporary financial sector is profoundly shifting, demanding a fresh perspective. The rivalry isn't limited to individual companies with their proprietary products and assets anymore but a contest between the entire ecosystems. These partner ecosystems facilitate combining services, coordinating resources, and executing cohesive actions.
In this evolving landscape, the emergence of new players challenges the traditional norms of legacy financial services, emphasizing the need for adaptability and innovation to stay relevant.
The platform strategy aims to build an ecosystem that includes customers, partners, services, and devices. The goal is to encourage the creation and exchange of services for the mutual benefit of everyone involved. Thus, implementing robust API security governance is essential to safeguard this ecosystem and ensure the secure exchange of services.
The integration within the ecosystem brings about a slew of advantages, including:
Expanding to New Sales Channels
Nurturing Engagement with New Customer Segments
Pioneering New Products and Services
Amplifying the Capabilities of Existing Offerings
Platform Thinking Principles
To adapt to this shifting paradigm, organizations must embrace these fundamental principles:
The transition from Resource Ownership to Resource Orchestration
Shift from Internal Optimization to External Collaboration
Elevate Focus from Individual Customer Value to the Value of the Entire Ecosystem
Gartner identifies four core platform-based strategies, which are not mutually exclusive and vary in terms of their openness levels, spanning internal, restricted/private, and public APIs:
Collaboration Platforms: These platforms facilitate integrated and collaborative operations with partner ecosystems in innovative ways.
Orchestration Platforms: They enable the orchestration of shared resources and processes among ecosystems.
Creation Platforms: Partners can develop their own applications, products/services, capabilities, and business models in the DX platform.
Examples of Banks with the different platforming models:
Notable Banking Platform Initiatives
Several banking institutions are already implementing platforms to support their API strategies and stay competitive while driving innovation:
Fidor Bank: Fidor Bank has created monetized payment APIs, accounts, and communities (fidorOS) API layer, empowering partners to craft their own apps and services while seamlessly integrating with the bank's solutions.
ING Bank: ING Bank has established an internal API platform, fostering global reuse and enabling co-creation.
Crédit Agricole: This bank provides third-party apps built on top of their Banking APIs, aiding customers in managing their finances effectively.
Kaspi Bank: Kaspi Bank has implemented a marketplace that offers products from retail customers and provides convenient payment processing solutions and credit options during the purchase process.
HSBC: HSBC facilitates correspondence between customers seeking services and those who can provide them, facilitating seamless transactions.
BNY Mellon: The Nexen integration platform connects customers, partners, and fintechs, offering apps, APIs, and big data solutions.
Capital One: Capital One's APIs empower merchants to tailor offerings to their customers, which can be paid using loyalty program points.
Commerzbank: Commerzbank owns Mainfunders, a P2P lending platform connecting companies needing credit with investors, creating transparency.
BBVA: BBVA has built a creative platform with over 1500 registered partners accessing its APIs, offering extensive data services and solutions.
Barclays: Barclays permits financial technology providers to develop new capabilities on their private digital platforms.
DBS: DBS has launched a car marketplace that integrates various dealer platforms, simplifies transactions, and offers financing and insurance.
The Role of APIs in Platforming
To effectively support a platforming strategy, whether it involves building or participating in an ecosystem, banks and fintech require a mechanism for the internal systems to integrate with partners in an agile and efficient manner.
APIs, as standardized and agnostic connectors, provide the solution to these integration challenges, connecting people, things, applications, and ecosystems safely and at scale.
Banking APIs come in three forms, each with its own application and monetization model:
Closed or Internal APIs: These are employed for internal system integrations, enhancing internal operations, reducing costs, and increasing flexibility, which aligns well with an agile architecture based on microservices.
Restricted or Private APIs: These Banking APIs link the organization's systems with specific partners, expanding service offerings and enhancing the combined functionalities of both organizations.
Open or Public APIs: Open APIs expose data and functionality for public use, fostering innovation and new business possibilities. They can also be marketed as products, opening up revenue opportunities.
Legacy system modernization is essential in leveraging these API strategies, ensuring seamless integration and functionality upgrades across the banking ecosystem.
API Monetization Models
To effectively manage APIs, a comprehensive API management platform is crucial. It offers features such as Mocks, Smart design, and exposure control (Lifecycle, Versioning, Advanced Analytics) for faster development and time to market.
Through the integration platform, modern API security solutions (OAuth, cryptography, injection protection, among others), performance optimization (caching, quota control, etc.), and data transformations are applied.
Engagement tools are equally vital to encourage the effective use of APIs and gather feedback for ongoing improvement. The primary tool in this regard is the Dev Portal, which offers API documentation, code samples, download files, SDKs, a sandbox environment for testing, and a forum for support and knowledge exchange.
Leverage Sensedia for Your Banking Platforms
Sensedia stands at the forefront of API Strategy solutions and offers consulting and guidance to support your business transformation through IT architecture, Microservices, and API design.
Our API integration platform equips you with comprehensive tools to manage, expose, consume, and monetize APIs, enabling innovation in various domains, including internal systems, microservice development, partner ecosystem integration, IoT projects, open banking solutions, and hackathons.
In addition, we host the most significant event in the Americas dedicated solely to APIs - the API Experience. Explore the endless possibilities of platforming with Sensedia at APIX!
In this era of profound industry change, embracing platforming strategies and harnessing the power of Banking APIs are crucial for financial institutions seeking to thrive and innovate. Adopting these strategies and systematic API management solutions can be your key to success as the financial landscape evolves. Let Sensedia be your partner on this transformative journey.