In a recent article on American Banker (Don’t Give Away the Store When Enabling APIs), I brought out three best practices for banks to adopt as they think of leveraging the Fintech and Banking API phenomenon.
Even as Banking API are being touted as a must for banks, the common position of argument is from the perspective of emerging companies and Neobanks who are trying to reach the customer in a world that has apparently just opened up. Banks are widely being positioned as too slow, expensive and unwilling to innovate with the customer in mind. While the API trend for open banking cannot be ignored, I’m summarizing the 3 key points of the American Banker article that highlight a 3-pronged approach:
- A more open ecosystem does need to be created, but banks should be looking to improve, rather than letting the innovation defragment the customer experience. Banks should be looking at the innovations that meet the niche or fringe needs, and also build upon the customer 360, rather than destroy the integrated CX. The App store model that Fidor bank in Germany has initiated is a great way to do that. Citi is embarking on this too.
- The benefits of Banking API should go both ways. Even as emerging players seek to leverage the bank’s data, the banks should be building a data pipe back into the bank as well. That will help build increased customer context (e.g. transaction detail) which has not been fully available as of now due to regulatory and privacy concerns. Citi’s Price Rewind program is a step in that direction that can be enhanced through such 2 way models with the consent of the customer.
- Enable rapid innovation by engaging in white-labeled partnerships and perhaps acquisitions to accelerate technology innovation. Banks have been doing white-labeled offers for decades so this is nothing new. Services such as identity monitoring, and online retail marketplaces have existed for years. BBVA’s acquisition of Simple, and their real time payments service based on Dwolla are also examples of the acquisitions and partnership approaches. The key will of course be the pace at which banks can internalize these innovations.
Approaching the new digital world the right way is crucial to be able to maintain the customer front end. Its easy to be dis-intermediated. While being a provider of the banking and payments backbone is a viable option, the real risks may be about missing out on innovative revenue and business models that arising.