Application programming interfaces aren’t merely tech tools — they’re the underpinnings of digital business design.
In its report, “Four Ways APIs Are Changing Banking,” tech research firm Forrester notes that APIs enable businesses to communicate, collaborate and extend their value proposition via digital platforms. They open new opportunities for banks and altering the way financial institutions approach their business strategy.
Because of this transformative power, writes Forrester, “APIs belong with the business, not just the technical community.”
Forrester identifies four major categories of APIs, each with its own design goals and governance requirements, each targeting a broad category of business opportunities.
1. Internal APIs Improve Agility, Efficiency and Effectiveness
The complexity of legacy systems can inhibit business change. Banks are using internal (or “private”) APIs to insulate customer experiences and business processes from constraints such as slow legacy technology that’s in the process of being upgraded.
Organizations must be mindful, though, the report states, not to merely “wrap” existing functionality with new APIs. Instead, they should implement strong governance to ensure that all new APIs contribute to a coherent portfolio.
2. B2B APIs Optimize External Processes an Relationships
Also called “partner” APIs, business-to-business APIs enable integration with business partners, business customers and other stakeholders.
Forrester points to examples of financial institutions using B2B APIs to facilitate payments, manage secure authentication and even enable business partners to build their own financial products. Wells Fargo, for example, developed an API gateway that separates its APIs into data and payments services.
When designing B2B APIs, Forrester advises, digital business professionals need to understand how they will improve processes and business outcomes through cross-enterprise, real-time flows of transactions, data and insight.
3. Open Web APIs Expand Market Reach and Create Value
Through open (or “public”) APIs, banks are giving external developers and innovators across the world the opportunity to create value by tying in with bank data, product catalogs, business processes and other business assets.
Open APIs, Forrester notes, can help banks to expand their market presence, increase sales, generate new revenue streams or foster an open-ended stream of innovation around its business.
The report calls out several examples of financial-sector open APIs in action. Fidor Bank, a German online bank, designed its services to be implemented behind APIs from the outset. This approach allowed developers to “white-label” the bank’s operations and enable rapid expansion.
Another European bank, Bank Millennium, plans to broaden lending opportunities and acquire customers via data from open banking APIs; yet another, Alior Bank, plans to use open APIs to pursue expansion across sectors like telecommunications and healthcare.
Forrester notes that banks frequently find it challenging to not only understand the synergies between their business and a broader community, but also to create APIs that “make it easy for others to participate in creative ecosystem innovation.”
4. Product APIs Increase Product Value and Propel Digital Ambition
Finally, product-related APIs extend the value of a product or service by enabling direct control of, or integration with, that product or service. For instance, Forrester notes that Visa released a product API allowing card issuers to offer “card control” features to customers — enabling card users to set spending controls, receive alerts and turn their cards off and on.
According to Forrester, APIs “truly embody the notion of digital business.” However, the report warns that it’s not enough for banks to roll out APIs in an ad hoc fashion. Instead, financial institutions must adopt a comprehensive API strategy that evolves along with business strategy.
“Pose the question ‘What do our customers want to do?’ rather than ‘What do we have that we want to put in an API?’” Forrester advises. “Articulate and celebrate … success. Make it clear how … APIs can drive business value by aligning the contribution of the API to business strategy.”