The bank of the future will look very different from what people have become accustomed to today. It will be defined not by the banks, but by the demands and expectations of their customers. Consumers don’t want to be tied to any one provider or channel. They want to bank where they want, when they want, and how they want.
This shift is being accelerated by open banking and PSD2 in Europe, with both putting the power of data into the hands of the customer. However, while this shift might seem like a threat to banks, it actually presents a major opportunity for those ready to grasp it.
A marketplace of opportunities
Given banks are so data-heavy, there is significant opportunity to unlock new revenue channels by using that data to enable highly personalised customer experiences in collaboration with other banks and service providers. PSD2 and open banking provide the impetus for banks to develop APIs that enable them to make initial steps towards greater collaboration. And the more open that banks become, the more opportunities they can create to inject themselves into joint value chains with other service providers. It’s critical therefore to not see open banking as a compliance exercise with the goal of ticking a box, but as the basis for successful digital transformation.
At its heart, open banking is an opportunity for banks to become curators of financial services, creating a marketplace where customers and providers can come to select the best products at the right price. In the same way that more wealth was able to flow between Europe and Asia as the Silk Roads extended further east and west, banks can enable more revenue to flow through their marketplaces by building reusable APIs that connect to trusted third parties. For example, HSBC was one of the first UK banks to make a serious step towards this vision with the release of its Connected Money app, bringing in data from more than 20 rival banks to create a hub from which customers can manage all their bank accounts. More recently, NatWest began trialling Mimo, a virtual personal assistant that uses open banking APIs and artificial intelligence (AI) to help customers switch to better insurance and utilities deals.
Building a trading route
If banks want to thrive in this new era and position themselves as a digital marketplace where consumers can come to satisfy any financial requirement, they need to reimagine their business as a platform. This can best be achieved by unbundling and repackaging their digital assets as a discrete set of capabilities exposed via APIs. With this approach, every service, process and digital capability within the bank is ‘productised’ and discoverable to others.
This model will naturally begin to form what is known as an application network, creating a digital Silk Road paved with applications, data and devices that are connected via APIs. This makes these assets pluggable and reusable for any team that requires them, both internally and externally. As a result, it lays the perfect foundation for rapid innovation and closer collaboration between banks, fintechs and other service providers, thereby future-proofing banks for success in the years ahead.
The road to the future
By securely opening up their APIs through an application network, traditional banks can behave more like Silicon Valley start-ups, creating new revenue channels by sharing their core banking capabilities and customer base with authorised innovation partners. For example, MasterCard has turned many of its core services into a platform of APIs and is growing an ecosystem around its capabilities. The Mastercard Travel Recommender allows travel agents and transport providers to access customer spending patterns through its APIs and to offer customers targeted recommendations for restaurants, attractions and activities based on their previous behaviour.
These new revenue generating opportunities can have a significant impact on banks’ bottom-lines. MuleSoft research found 36 per cent of organisations with APIs are generating more than 25 per cent of their revenue through those APIs. This indicates APIs will play a central role in enabling the bank of the future, providing a positive catalyst to drive the advent of a new business model built on openness and choice for the consumer.
As banks embark into this brave new world, it’s critical that they understand going it alone will not deliver value for customers and may see them leaving altogether for a nimbler competitor. However, there are huge gains to be made for those bold enough to reimagine their business as a platform and embrace the change that lies ahead. These gains will only be achieved if traditional banks adopt an API-centric mindset that accelerates integration and innovation and provides a seamless customer experience. Unlocking data through APIs and an application network is the best way to stay ahead of the pack as the pace quickens in the race to become the bank of the future.
Danny Healy, financial technology evangelist, MuleSoft
Image source: Shutterstock/MaximP