Software is eating the world. While penned more than a decade ago by Marc Andreessen, the idea has only grown with the rise of APIs in financial services. But these APIs aren’t just powering innovation internally — banks are trying to extend their reach by delivering their APIs as capabilities.
“What’s happening in the banking space is starting to become generalized across the entire economy and really how you deal with APIs in general,” Eyal Sivan (a.k.a. Mr. Open Banking) stated in a recent webinar.
With this shift in priority, banks are becoming platforms where developers can find and use API capabilities in all different digital contexts — known as embedded finance.
APIs in financial services: The embedded finance wave
Embedded finance is very much a reality today. It is not a futuristic, theoretical concept: it’s the way people interact with their banking services now.
In 2021, embedded finance reached $20 billion in revenue value. The market could double in the next three to five years.
Embedded finance can come in one of two forms:
- Bottom-up embedded finance: Multiple fintech apps provide bilateral permissions to share data
- Top-down embedded finance: A super app handles all the coordination between micro apps so they can work together
In either case, the expectation is that the consumer experience will be seamless. Consumers can access extended capabilities through financial service APIs when they need them, without disruption to their user experience.
Open banking accelerates platform shift
The platform idea isn’t a new one for banks. In fact, banks have been making this shift for the past decade with the introduction of public developer portals where open APIs can be published and consumed.
Open banking has effectively poured fuel on that fire.
While APIs have always been powerful, they were also proprietary. The way account information pulls in from Bank A versus Bank B was different. By introducing common standards and reducing costs, open banking has made the move toward platforms even more feasible and enticing for banks.
The two sides of open banking: publication & consumption
You’re likely familiar with the red ocean/blue ocean concept coined by strategy theorists W. Chan Kim and Renée Mauborgne. A “red ocean” refers to existing competitive markets characterized by fierce competition (and thus, bloodied water), while “blue ocean” represents untapped market spaces with little or no competition.
When it comes to open banking we can think of API consumption as more of the red ocean side of the coin. Banks enhance their mobile channel experience by adding API capabilities that pull data back from other banks.
Blue ocean opportunities await in the publication of APIs for financial services. Banks tear down walls and make API capabilities available through a broader ecosystem beyond a bank’s mobile app and website.
“You can provide banking capabilities anywhere that a customer is using a digital app,” explains Sivan, “because your banking capabilities can be embedded in those digital experiences.”
The product-based vision for APIs in financial services
Making banking capabilities available to a broader audience prompts a conversation around treating APIs like products. Banks need to cater to API customers — in this case, developers — in the same way they would someone applying for a mortgage or a credit card.
While banks need to support developers in plugging APIs into the experiences they’re creating, they also need to think about product owners. After all, they are responsible for making APIs in financial services successful. APIs presented in a business-minded manner become less of a technology and more of a product.
One important distinction to make on this front is the ideas of API as a product and API products are not the same. Whereas API as a product relates to lifecycle management — think API-first design, supportive documentation, etc. — API products zero in on adoption.
The key is a shift toward highlighting the business value of API products to drive adoption, and it’s different from what many are doing right now.
API products ask you to step inside the shoes of your target audience and understand how to support their experience so they can build API-enabled digital banking.
That could be one or two APIs packaged together as a product, with supporting business documentation to support their use. It can also relate back to flexible subscription and pricing plans.
How banks can support successful API adoption
Successful API adoption starts with rethinking the approach to an API catalog. Developers can go there to find what they need, but they may struggle to get what they need.
Considering that developers usually need more than one API to meet their needs, logically grouping business functionalities together helps developers get all the assets they need at once.
An API marketplace helps support this by giving banks the ability to package and categorize APIs in a secure environment customized to their brand. At the same time, providers and consumers can access insights around API adoption, use, and performance that tell a story of how successful APIs have been. This helps banks and developers make sound decisions for the future.