Banks have long been chided for failing to keep up with the level of customer service provided by those in other industries, but why should that be the case? With Application Programming Interfaces (APIs), banks can provide a banking service that matches the user experience of success stories such as Amazon and Siri. Here is how.
Open APIs make it possible for the products and services of one company to connect and integrate with those of another in order to share data and add value, and they are set to take the banking industry by storm. In fact, the transition to API banking is inevitable – new regulatory mandates aiming to increase competition, innovation and transparency, such as the Second European Payment Services Directive (PSD2), effective from 2018, will actually require banks to grant approved third-party providers access to customer accounts, payments and product data through APIs.
But banks needn’t wait for regulations to dictate when and how they use APIs. Rather, there is huge scope to take the initiative – leveraging the power of APIs to create their own value-adding client services. Harnessed properly, APIs can provide banks with a rich source of information – on client payment profiles, know your customer information and financing history, which can be used to drive innovation, enhance product offerings and cut costs.
At Intellect's Global Transaction Banking (iGTB), we have already thought at length about how this information can be used – and the possibilities are revolutionary. By using APIs to better understand the nature of the relationship between two transacting parties, for instance, banks can automatically set payments on the most efficient rails. An urgent payment from a buyer to its small supplier for example, will have very different requirements from, say, a regular salary payment to internal members of staff, yet many corporates are currently incurring costs and inefficiencies by treating them identically. The data harvested from APIs can help banks to understand these different needs, priorities and intentions – moving beyond simple utility service provision to become central to the lives of their clients.
Moreover, by using APIs to increase the sharing and generation of data, banks can not only expand their innovation to comprise an entire ecosystem of partners, but also create entirely new revenue streams. To expand on a previous example, the bank recommending the most efficient payment rails for a given transaction can make different kinds of recommendation. The most obvious is what we call a “Best Next Action”, which suggests the most effective choice available to the client given their current service agreement with the bank. But banks can equally make a “Best Next Offer” – which suggests the most effective action for a client, taking into account all options in the bank’s product portfolio.
For clients, this is fast, simple and optimised advisory, free of errors or bias. For banks, it is an unparalleled tool for up- and cross-selling – promising to grow revenue and cut costs at a stroke.
Without doubt, the open banking business model, enabled by APIs, holds much promise. But to maximise value, these digital interfaces must be designed with the end user in mind. An API is a product – just like a car, or ballpoint pen – and its success ultimately depends just as much on its simplicity and design, as on what’s under the hood. Designed well, APIs can deliver immense value. Designed poorly, however, they will create only frustration, confusion and cost for the bank. Worse still is the risk that third-party developers will leave them aside and pick another bank’s integration point to consume their services. It’s similar to how UX designers have applied the principles of usability engineering to user-interface design to increase adoption of self-service products.
Equally, amid the clamour for digitalisation, the human element must not be forgotten. Progressive banks – those building for the future – need to invest in interfaces that are sensitive to different situations and contexts to ensure their clients derive maximum benefit from new digital services. If they can combine all three elements – the technology, the banking insight, and the design – they have the makings of a spectacular revolution.
This is the vision we are working to realise at iGTB with our upcoming CBX Cash Management platform.
Herber joined Intellect from solutions provider Backbase, where he was responsible for product development as well as leading the company's American business and operations. Herber brings with him more than two decades experience in product strategy, business development and product development.