Why APIs are essential to banks’ digital hopes

Customers are increasingly used to buying products and services that are highly personalized and delivered in short order, via their laptops, smartphones, or other channels. From customizing a pair of trainers to ordering groceries that can be delivered in a matter of hours, digital commerce is radically changing people’s behavior.

Global retail e-commerce sales hit US$3.53 trillion in 2019, up from US$2.98 trillion the previous year, according to data from Statista, which forecast growth to US$4.20 trillion in 2020 and to US$6.54 trillion by 2023. This was before the arrival of COVID-19, which has forced people to stay away from physical stores and further ingrained e-commerce behavior in everyday life. While the pandemic’s long-term effects remain uncertain, the direction of travel for digital business is clear.

Embracing platform-based business models

The banking industry is not immune to these changes. Challengers such as N26 and Starling, and fintechs such as Adyen and Klarna, are already delivering products and services that are meeting the public’s evolving expectations. From digital-first bank accounts to online payment services that let you buy now but pay later, such companies are innovating rapidly and effectively.

In contrast, traditional banks’ digital transformation efforts are often held back by cultures and systems that do not easily support dynamic customer experiences. In particular, legacy IT can be cumbersome, error-prone, and costly to modify. While some banks have made advances by launching dedicated mobile apps or digital wallets, there is room to do much more.

To help accelerate this evolution to digital offerings, banks need to take advantage of the benefits presented by application programming interfaces (APIs). APIs are a set of software functions and protocols that developers use to flexibly build new apps and design new use-cases. Further APIs can enable different apps to interact with each other. Uber’s developers, for example, use APIs to match the real-time locations of its drivers and customers by making use of diverse services and systems.

Using software to interface with legacy IT

But APIs can also be applied to a wide range of existing banking processes in order to make them more dynamic. When it comes to card issuance, for example, a bank might decide it wants to offer its millennial customers personalized cards with online activation and renewal capabilities. Traditional card management systems are often too rigid and slow to enable this, but APIs exist to help to get around this problem.

Banks have a number of options when it comes to accessing APIs. One way is to use a dedicated platform such as G+D Convego Connect, which provides a ready-made marketplace of APIs that banks can use, including those related to card issuance. The relevant team at a bank can simply log in, browse, and select the API they want, and begin testing its suitability. Because Convego^® Connect acts as an interface between a bank’s IT systems and third-party software, there is no costly, complex, and time-consuming integration required. Once a new API-based product or service has been tested to a bank’s satisfaction, it can be launched quickly and securely across a wide range of devices. Built-in privacy controls also mean customers have peace of mind if they want to get involved in Open Banking by sharing their data with a third party. The platform also enables banks to build partnerships with third parties to develop new opportunities.

A competitive threat and significant opportunity

As customers grow to expect a more seamless and integrated digital relationship with their bank, from having more control over their finances to accessing new products and services, there has never been a better or more important time to explore what APIs can do. “API-driven products and services represent both a competitive threat to incumbent banks and a significant opportunity,” management consultants McKinsey wrote last year.^{1​​​​​​​} “Banks that have made a slow start need to accelerate and focus more intently on turning innovation into real impact on the bottom line.”

Published: 20/10/2020