The Possibilities of API Ecosystems

Banks and API Ecosystems

In our last research snapshot, we talked about the importance of interoperability to modernization plans, and specifically about the use of application programming interfaces (APIs) to enable such capabilities. This week, we are looking at exactly how banking institutions are putting their API strategies to work. What are the specific use cases they are focusing on? Where can interoperability through APIs add real value? And, at the end of the day, what exactly are we talking about enabling?

According to CSI’s 2023 Banking Priorities Survey, the number one strategy banks are pursuing when it comes to their open API ecosystems is offering third-party products/services to customers. This makes a ton of sense, as it is essentially speaking to the best of breed approach that we talk about often, by which a financial institution shops around for the most suitable solutions for specific functions or use cases, rather than getting everything from a single vendor, a strategy generally termed best of suite. Such an approach allows a bank to compile solutions based on real customer needs, helping to achieve differentiation in an increasingly competitive market. This is key, especially as now more than ever banks need to be thinking about how they can stand out from the pack and endear customers to their products and services.

However, the data also shows that other use cases trail far behind this one in adoption — the next most selected option, embedding your data, products and services into third-party workflows, was chosen by only 21% of respondents, followed by offering APIs for third parties to access your data at 16%. This gap suggests that banks may be taking too narrow a lens when thinking about their API strategies, which could lead to missed opportunities. In particular, that so few are thinking about how to use APIs to provide third parties with access to bank data is concerning given the likelihood that open banking regulation is on the horizon in the US.

The bigger conversation, though, isn’t about individual use cases — it’s about creating a holistic strategy that will enable your bank to take advantage of the many opportunities that API ecosystems provide. Yes, of course, it makes sense to lead with what you want to accomplish right now, but this question asked about strategy. And your strategy should take a long-term view that considers all of the possibilities and value a particular initiative could bring to the bank. While it is certainly positive that more banks are waking up to the value of APIs — according to the report we covered last week, Banking at a Crossroads: The State of Banking Modernization, 66% of US banking leaders surveyed said their modernization strategy includes an interoperability layer or API gateway — it’s important to employ forethought when putting things into practice.

Ultimately, the risk here is that banks may start to build without a well-thought-out strategy for what they are building. And that would be a huge mistake. Taking a step back to really look at all of the potential avenues and how they might apply to your business could go a long way in helping to craft a roadmap to wider success.