The Banking Ecosystem Imperative

By Michael Endler and Rob Parker-Cole

People still routinely say “there’s an app for that,” but the truth is, this phrase is outdated, bordering on unhelpful, as a business strategy.

Too few business leaders, and particularly too few leaders within the banking industry, recognize that digitizing the status quo isn’t innovating, and that the release of a few apps generally does not constitute a viable digital strategy.

Today’s customers increasingly demand connected experiences — not an app or a website, but cohesive experiences that allow them to do what they want, when they want, in the ways they find most convenient.

Jumping among apps and authentication processes to execute a transaction isn’t an ideal digital experience. If a consumer sees something they want to buy on a social media site, they don’t want to navigate to a separate application or digital experience to make the purchase — they want to make the purchase, simply and seamlessly, within the context of what they’re already doing.

Likewise, when a bank merely moves a legacy service, such as the ability to view an account balance, into the online space, it may not be a satisfying digital experience, especially if more modern, connected, and digitally-enhanced evolutions of the service is available elsewhere. Consumers increasingly want experiences that add value — that don’t just display an account balance, for example, but also offer relevant services such as personalized loan, investment or debt reduction offers.

Banks Have Been Slow to Evolve

This “app vs. experience” tension is a particularly acute challenge in banking. According to a recent Capgemini survey, for example, banking executives are losing faith that their organizations have either the necessary digital capabilities or the leadership to compete — perhaps in part because, per the same survey, less than a third of banks have clearly defined roles and responsibilities around digital initiatives.

These survey results track with other evidence that suggests both that consumers are increasingly open to getting financial services from technology companies rather than traditional banks, and that challenger banks and fintechs are already leveraging superior digital execution to steal market share from incumbents. Customer expectations have increased dramatically in recent years as consumers have become more digitally empowered — and put simply, many banks are struggling to evolve. Some banking leaders may not know, for example, if new technology companies are competitors or partners — whether consumers are open to getting their financial services from technology companies or through technology companies that have partnered with banks as service providers.

To adjust, banking leaders must consider going beyond their brand. First-party applications, physical branches, and services built entirely within the bank — these are all good things that banks are skilled at producing, but without the additional components and participants to connect these assets to richer digital experiences, banks are limiting themselves and leaving open opportunities for more nimble competitors.

Rather than attempting to own the customer experience and put the bank brand front and center, bank executives should consider how other businesses are leveraging external digital ecosystems to create additional value for themselves and for their customers.

Take Ticketmaster. A few decades ago, it bore most of the burden of attracting and satisfying customer demand for all the concerts, sports and other events for which it sells tickets. Customers had to visit physical ticket booths or call a service line, and the company had to shoulder most of the effort to develop and support this infrastructure. The brand may have been front and center in every experience, but the brand’s reach was constrained, piped through a finite set of labor-intensive channels.

This business model has evolved significantly. Today, customers can not only visit Ticketmaster websites or use a Ticketmaster app but also purchase tickets within the context of other digital experiences — such as when they see a post in a social network for an event they’d like to attend. This is possible because Ticketmaster expresses aspects of its business — such as event look-up or ticket purchasing capabilities — as application programming interfaces, or APIs, which enables it to insert those capabilities into new digital contexts, such as social media experiences. The brand may not always be as prominent as when customers visit a ticket booth — but its reach is significantly broader and its customer experiences have arguably become more convenient.

Broadly speaking, APIs are how software connects to other software and how developers leverage software for new applications, and like Ticketmaster, many companies have opened their APIs to external partners and developers to accelerate innovation.

Walgreens, for example, lets external developers build its photo print ordering capabilities into mobile applications, which in turn lets developers build smartphone apps that let users snap photos and immediately send them to Walgreens for printing. This approach enables Walgreens to rely on developers and their apps for some of its demand generation while also creating a wider, more diverse and innovative set of features around Walgreens capabilities. As with Ticketmaster, Walgreens has adapted its business by leveraging technology to connect into broader ecosystems of software and participants.

Some banks have embraced ecosystem strategies. Western Union, for example, opened a digital “branch” inside a social network. As part of an effort to deliver more personalized experiences to customers, Macquarie has produced APIs that allow developers to access and build upon its business services, all while allowing the bank to manage and maintain visibility over how its digital assets are used. “The capability to connect to various platforms with a digital, responsive, technology-agnostic platform is vital,” said Rajay Rai, Head of Digital Engineering & Applied Innovation for Macquarie’s Banking and Financial Services group, in a case study.

But despite pockets of progress, more bank leaders need to embrace this kind of thinking.

Banks possess enormous capabilities — but they don’t possess the expertise or resources to own every aspect of a modern customer experience. Tapping into software ecosystems can allow participants to leverage one another’s strengths for mutual benefit. Banking’s slow embrace of ecosystem strategies has in some cases both enabled upstart fintechs to innovate faster and impeded banks’ ability to deliver the experiences that customers want.

APIs: Ecosystem Enablers, Not Compliance Minutiae

APIs are likely familiar to many in banking, of course, because they are the mechanism through which many open banking regulations are satisfied. But too many banks, following their brand-focused histories, see these APIs as merely obligations to be ticked off, rather than ecosystem opportunities to be leveraged. A bad API does not help an enterprise insert itself into new digital contexts, co-innovate with partners at scale, or transform its business.

Developers want APIs that offer a clear value proposition, use predictable and reliable design conventions, are well-documented, are supported with testing environments and sample code, and can be accessed through self-service processes — that are easy to use, in short. In banking specifically, developers may want APIs that comply with regulations such as GDPR. The point isn’t to create one-off APIs that satisfy regulations but rather to increase consumption of APIs that not only satisfy regulations but also improve a business’s ability to participate in ecosystems and expand its reach. Developers will readily consume only those APIs that are designed and managed as products and that treat developers as customers.

In this way, succeeding in ecosystems is in many ways succeeding at API productization and management. To accelerate their progress, banks should consider focusing on the following best practices:

• Build digital experiences with APIs. Development teams should expose data and functionality through APIs with the goal of solving business problems and encouraging developer adoption. APIs should be designed from the start to be externalizable, easy for developers to consume, and supported by self-service resources.
• Understand that APIs are products. APIs are not middleware minutiae that business leaders can relegate to their IT counterparts. Rather, IT must be seen as a strategic leader in its own right, and business leaders should be involved in the productization of APIs from the beginning. Building APIs is not enough; they must be supported by go-to-market plans, and managed and iterated to drive consumption within broader ecosystems.
• Leverage APIs to participate in ecosystems. Today’s digital experiences are largely formed by intersections among many different companies’ technologies. APIs enable a company to insert its business into other companies’ digital experiences and to share business assets with third parties for co-innovation.

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