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API strategy to counter digital disruption

Today’s financial customers today are a discerning lot, more so with the pervasiveness and evolution of mobile phones and technology. Shrinking boundaries of doing business and the need to work and trade across time zones fuels the desire to partner with an equally nimble footed and “always on” financial institution. “Always on” translates to being available 24/7/365 – if not for all services at least for some routine ones.

A view that has been gaining ground recently is around the “commoditization” of traditional banking services. Some of the routine functions like payments and transactions are no longer considered to be service differentiators offered exclusively through banks  – more so with new age organizations like Google, Amazon etc playing disruptors and setting market trends. Instead, banks now have to compete directly with targeted, highly-scalable fintech businesses that give retailers and online merchants, for example, the ability to embed financial services into every aspect of the digital experience on any device or form factor. Already, fintech specialists can be found offering virtually every product that a bank offers, with fully-functional APIs in support of everything from consumer lending. This has forced most traditional banks to sit up and take notice of this “digital bandwagon” else they risk losing mind share, customers and consequent revenue - not necessarily in that order. Does this mean then, that Banks that should now start investing heavily to be digitally relevant or face potential rout? Is there an optimum strategy that can be leveraged to balance the best of both worlds – transcending the digital and traditional paradigms?

Let’s try to get back to the fundamentals. The 3 commandments of any service industry, key to the success of an organization can be simply stated as under:

  1. Effectively understand the current business need and anticipate future needs to create a relevant service
  2. Ensure the availability of that service through multiple channels to maximize usage
  3. Introduce the service with speed before competition warms up to the opportunity and then keep on differentiating / evolving / improving

Is there a common component that lets an organization seamlessly transition from Step 1 through 3 without entailing a huge investment in terms of new systems / applications while leveraging the existing legacy systems? The answer seems to be APIs – Application Program Interface, for the uninitiated – nothing new and fancy, but more importantly -   ubiquitous!

As one of the core building blocks of modern programming, an application program interface, or API, encapsulates code into an implementation-independent building block. To use an API, a programmer need only understand the API’s published specifications, and so there’s no need to know how the underlying code actually works. In turn, the API’s publisher can make improvements to the underlying code without interfering with any the services that make use of the API. This “loosely coupled” approach to programming enables fast and easy creation of solutions that are greater than the sum of their parts. For example, it’s long been common practice to see websites retrieve and display search results using a Google Search API, or to display products for sale using an Amazon Product Advertising API.

The API-powered digital ecosystem opens up multiple opportunities for banks to build personal, customized and contextual services of their own.  More importantly, an effective API framework strategy helps transcend the physical and digital dimensions with relatively less effort, time and investment. In fact, it allows banks to insulate some slow moving, expensive but necessary IT applications from being a showstopper for the fast pace of digitization. An added comfort is the ability to leverage APIs in stages to evaluate the effectiveness of the success of a strategy and ability to incorporate course corrections, as necessary.

A strategic roadmap that might work across institutions is as under:

  1. 1.       Maximize API utilization - internally

The first stage toward API enablement encapsulates legacy technology behind a standard set of APIs that can be deployed internally within a bank across its various channels: mobile, tablet, kiosk, ATM and IVR. At this stage, banks have a digital ecosystem spanning multiple channels to:

  • Facilitate a highly-personalized digital experience for users
  • Ensure a consistent and seamless user experience
  • Expose some of their core processes like account opening / transaction information etc

At this stage, the bank is able to effectively insulate the necessary legacy systems like mainframes and core banking systems – preventing them from being bottlenecks to the pace of digital transformation. Additionally, multiple channels are opened up to cater to the diverse needs of different user sets

  1. 2.       Share APIs with external partners

Given a robust set of APIs that encapsulate the capabilities of a bank, the next step is to make those APIs available externally to partners who can develop unique selling propositions in combination with contextually-relevant digital services. By doing so, banks would benefit from

  • rapid onboarding of new customers through these innovative new services like crowd funding payment processing / personal financial management / personal advisory services
  • increased revenues from incremental transactions like service brokerage etc


At this stage, banks are able to mitigate risks of existing legacy systems in terms of limited functionality and application challenges. By exposing the APIs, and allowing external partners to help solve business issues, it’s a win-win for all. Banks do not need to overhaul legacy systems, while partners do not need to invest in building core functionality and can concentrate on the add-ons.


  1. 3.       Co-Create with APIs – customers as partners

Once APIs are available to both internal and external users, the next step is to engage with consistent conversations between banks, their clients and their partners on the co-creation of innovative solutions. Through direct partnership and involvement with multiple stakeholders, banks can design and build contextual, personalized solutions with the highest potential for marketplace adoption and success. Here the Bank can explore the creation of an app ecosystem to include:

  • Public App Store – apps that are deployed  on public stores for all users
  • Vendor App store – apps meant for licensed customers only
  • Enterprise App store –apps for the internal users of the Bank
  • Banking App store – make the public APIs available for other developers to build custom apps


This is a critical stage – allowing customers to decide and design services based on their exact need making them highly contextual and personal. The biggest benefit is the amount of customer stickiness that can be generated not to mention the ability to generate additional revenue from custom service.


  1. 4.       Optimize APIs

As the results of co-creation reach the marketplace, optimization through API management ensures that the co-creators of an API are prepared for success. In the digital economy, successful ideas quickly scale beyond what was initially scoped. It’s also a sure bet that the scalability question will arise faster than ever in the future, given the expansion of computing networks powered by wearable form factors and the Internet of Things.

At this stage, banks can start thinking about the optimization of application landscape and IT systems – in line with their strategic objectives


Effective API management eases the transition to “Internet scale” solutions, bringing in non-bank solutions and infrastructure where appropriate. An enterprise-level effort toward API enablement requires careful planning from the outset. By following the stages as described in the staged approach to API Enablement, organizations can achieve business benefits at each successive stage, while ensuring the maximum in strategic flexibility. This strategic approach helps organizations to avoid getting into situations driven solely by expediency. That’s to say, the easiest APIs to develop may not have the best business case. For example, if a bank co-creates APIs with external providers prior to having its own internal APIs under control, it risks becoming overly dependent upon the partner providing the API. In this way, robust API capabilities are a strong defense against disintermediation, one of the biggest risks in the digital economy.



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