Banks can lead the digital charge – APIs are the answer
With digital transformation sweeping the industry, Herber de Ruijter, Head of Digital for Corporate Banking at iGTB, explains how banks can take the initiative by leveraging APIs and historical client data to offer business-aware services to corporate clients…
“Digitalise or die”; such dire warnings having been ringing in banks’ ears for a number of years now – and with good reason.
Sky high customer expectations, growing regulatory pressures and increased competition from innovative fintechs are squeezing margins and eating up market share – making digitalisation an imperative, not an option. Yet banks needn’t simply be reactive in the face of such change. They can take the initiative; ensuring they thrive – rather than survive – in a digitalised world.
How do they do so? For a number of years, banks have been sitting on a gold mine of historical client data – and they are now in a position to take advantage. Based on a comprehensive and granular understanding of their clients’ needs and aims, banks can offer entirely new services, enhance client relationships and tap into new revenue streams.
Harnessing the power of APIs
The key to unlocking the hidden value of client data can be found in open APIs (application programming interfaces) – interfaces for electronic data exchange that enable the products and services of one company to connect and integrate with those of another. Banking regulations such as the EU’s new Payment Services Directive (PSD2) require banks to offer third-party providers access to their clients’ account information and payment services through APIs. With market forces driving this trend in geographies outside the EU as well, APIs are set to take the industry by storm.
There is enormous opportunity here for banks not only to comply with the latest regulations, but to seize new streams of data and channel them into value-adding services and improved user experiences for their clients. APIs, if harnessed properly, can provide banks with a rich source of information on anything from payment profiles and know your customer information to finance history. They can be leveraged to drive innovation, enhance product offerings, and cut costs.
Open API business models can enable banks to move beyond simple utility service provision and become central to the lives of their customers. By understanding the nature of the relationships between two transacting parties, for example, banks can automatically set payments on the most efficient rails. An urgent payment from a buyer to its small supplier, for example, will have very different requirements from, say, a regular salary payment to internal members of staff. By understanding the different needs, priorities and intentions, banks can make these processes quicker, cheaper and more efficient for their clients.
The shift to real time
Along with the arrival of open API banking, there is also clear momentum for an ‘instant’ banking revolution. In fact, 27 countries across the globe have now implemented, or have scheduled hard launch dates, for instant payment capabilities (although these schemes are primarily geared towards banks’ retail, rather than corporate, clients).
Providing real-time services requires banks to shift their entire product and service mindset towards immediate delivery and make fundamental changes to their legacy systems. And while this is a challenge, it also presents opportunities.
Take corporate cash management as an example; with liquidity events now happening in real time, rather than on a daily basis, corporates will be looking to make a greater number of short-term investments to avoid leaving idle cash in their accounts, and this is an area where banks can supply new tools to support the client. Instant overdraft facilities, ‘in-the-moment’ invoice factoring, automatic FX hedging, and dynamic account limits are just a few possibilities.
Certainly, real-time services will change the way progressive banks interact with their corporate clients, promoting in-the-moment service provision, and deepening relationships that might otherwise be left to stagnate, should banks be content to become simple utility providers.
Crafting services with the client in mind
The success of these new digital bank services, however – along with the relationships they support – will be determined as much by their design as by the products themselves. Self-service digital products have much to recommend them, but they will live or die by their user experience (UX) – cumbersome interfaces often throttle uptake and cost the bank dearly. UX enhancements – finding optimisations in the ‘last mile’ between corporates and banks and ensuring straight-through-processing – result in higher adoption of digital channels for self-service, and therefore significantly lower the cost for servicing their clients.
The key will be investing in intuitive and ergonomic product and user experience design. Progressive banks are already moving in this direction. Capital One, for instance, recently acquired design specialists Adaptive Path, while BBVA shelled out $117 million to bring Simple – an online UX-focused banking start-up – under its brand.
Of course, as the banking world becomes increasingly digitalised, it’s important not to forget the human element. Banking has always been, and will remain, a relationship-based business – and banks must ensure that, beyond the superficial friendliness of digital interfaces, their customers feel looked after on a personal level.
Regular dialogue with clients must remain a centrepiece of banks’ growth plans – even if they are increasingly mediated through digital channels. It will be critical, for example, to keep up with clients’ business models, preferences and priorities to ensure their banking services are in harmony with the rest of their operations. By asking the right questions, and harnessing the information in intelligent ways, banks can ensure they thrive in this new digital age.