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Application programming interfaces (APIs) enable organisations to create value around data and payments, create tangible and profitable relationships with customers and partners, and explore new horizons for product innovation.
Whether you’re accessing bank account information on your mobile phone or connecting to Facebook on the go, you’re using APIs to engage with a dataset. For organisations, APIs mean they have to open up their databases to third parties, such as customers and developers. The upside is they can potentially create a stronger relationship with their customers than was previously possible.
APIs enable third-party organisations to access data they previously couldn't and build new applications and services to support customer needs. It's a way of bringing third-party innovation into a market segment that had previously stagnated. For some organisations, however, making money from being a gatekeeper of data means they're unwilling to allow newcomers to have access to their systems.
Most organisations have a small number of APIs instead of the thousands needed for robust customer activity. Organisations often view API strategy as a purely IT and digital concern that doesn't impact the core business and its growth plan. For APIs to operate efficiently, internal silos need to be removed and a cross-functional team approach needs to be embraced.
Apart from the pioneers in the API world, most organisations lack a formal, robust API strategy. They're unclear about how to implement and operate a programme that delivers value to consumers and the organisation. The lack of ability to articulate the value (internally and externally), and demonstrate tangible outcomes shows there's a lack of an active strategy to enable a value conversation.
To understand the actual value, McKinsey Consultants' analysis estimates there is $1 trillion in economic profit globally via the redistribution of revenues and API connection points.
Often, people don't like change and may challenge the investment in an excellent API strategy. This is where C-Suite needs to champion the cause, not just from a financial and technology perspective, but from a cultural one as well.
An API strategy can engage the organisation, stakeholders, and customers to influence product innovation. It enables organisations to leverage skilled partners who provide expertise in areas that complement their own. To do this well, the integration of internal and external systems and better use of data is required.
In the financial service sector, financial technology (fintech) and the corporate community are increasingly looking to provide new value and enter new markets. They are leveraging their investment in APIs that they can deliver from products and services demanded by customers. Organisations' enterprise API strategy will need to be sharp to stay relevant.
An example of this is the open banking movement across the globe. There are two mindsets in play based largely on jurisdiction and legislation in various areas: using APIs for growth or using them for compliance.
Financial institutions that are willing to take a growth position will use open banking and APIs to better understand and remain relevant to their customer base. They need to operate under a new business model and embrace partnerships with third-party providers looking to establish new products and services.
An example of these services includes account aggregation, personal finance management apps, account-to-account payments, and the ability to provide lending data efficiently.
This has occurred largely because API strategies and tools have allowed organisations to move forward from traditional legacy systems.
Alternatively, the compliance mindset, where a financial institution is waiting to be told it has to act, doesn't benefit the organisation in the longer term. Essentially, they aren't looking at APIs positively from a revenue perspective or through a customer lens, nor are they creating an API strategy with broader benefits to the business apart from IT and digital teams.
In the New Zealand market today, Payments NZ, along with banks and third-party providers, have contributed to an open banking standard. However, there is still a long way to go given the low levels of API usage thus far.
This has caused the Ministry for Business Innovation and Employment (MBIE) to request feedback on the creation of a 'consumer data right' in New Zealand to give individuals and organisations greater choice and control over their data.
MBIE has raised this matter not just in regards to financial services, but with a long-term implication across other industries such as utilities, telecommunications, and health.
Many companies have created an API strategy. Unfortunately, many of these plans were designed without this fundamental paradigm. A successful API strategy requires an investment of resources, people, and partnerships. Only then can actual value be derived and reflected in tangible customer responses and organisational growth.
Michael has over 30 years of experience in the financial services industry in various customer-facing roles, payment systems, technology, and industry compliance across Asia-Pacific. This has been supported by extensive knowledge and understanding of financial services within the various segments and channels.