APIs, the simple interfaces that facilitate the communication or exchange of data between software programs are the cornerstone of a truly digital enterprise. From frictionless and fast customer onboarding to the cultivation of richly diverse ecosystems to comprehensive automation and insight-driven decisions, APIs are essentially fueling the digital future of banking.
Regulations such as Open Banking and PSD2 and the pressure on banks’ interest income further bring APIs into sharper focus. In 2017, we predicted the future of banking to be driven by open APIs, applications, app stores, and the extended developer ecosystems built around banks’ APIs. Heading into 2018, we see the adoption of APIs in banking evolving in four key ways:
- This year, APIs will increase in breadth as well as depth i.e. not only will we see more APIs allowing digital firms, FinTechs and other developers to build real world applications but also more APIs with production data. Most banks currently have APIs running in sandbox environment with dummy data. In 2018 banks will develop the necessary governance mechanism to take their APIs live with production data.
- The action in the payments space will intensify, as chat service providers integrate payment APIs. In India, Whatsapp has approached SBI, HDFC and ICICI bank for a proof of concept1, and it’s only a matter of time before Whatsapp payment API is extended to a wider ecosystem. Similarly, Google is also integrating payment APIs in Chrome browser2. These developments will lead to an exponential increase in the number of transactions taking place on mobile devices, and a growing challenge before banks and financial service providers in 2018 will be to scale their systems to be able to address the huge transaction volumes of the API economy.
- Banks will increase their collaboration with non-banking partners. They will not just be a provider of APIs, but also a consumer of APIs from other ecosystem players. The next generation of banking experience will not only be the result of an engaged developer community creating applications using bank APIs, but also banks using external APIs to enhance their offerings and expand their reach.
- Banks will look to monetize their APIs. Some progressive banks are already earning fee based income from their APIs. RBL bank has a revenue sharing agreement with Moneytap, a Bengaluru based start-up, where the latter uses the bank’s APIs to offer loans to the young urban middle class. The company’s product called ‘credit line’ is a flexible borrowing option that allows customers to choose their plan and EMI. The free app evaluates a user’s credit and loan amount the user is eligible for in less than 10 minutes. The customer is charged a small fee at the time of approval, usual interest fees and processing fees every time the customer borrows. 2018 will see more such models taking shape.
Read the full report here – #ReimagineBanking – 10 Strategic and Technology Trends to Watch Out for in 2018