The characteristics of a winning banking API strategy

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Many consider Open Banking APIs to be primarily an exercise in PSD2 compliance, ensuring a customer’s sensitive financial data is handled securely. However, it’s becoming increasingly clear that APIs can be more than intermediary tools. They also offer banks opportunities to innovate and unlock new sources of revenue. Innovation is essential in keeping up with competitors — but to make the most of these opportunities, it’s important to strategise.

Read on to explore what makes a good banking API strategy.

Why do banks need an API strategy?

A fairly recent development, Open Banking APIs allow banks to share a customer’s financial data in a safe and secure way. However, APIs (application programming interfaces) also have the potential to bring several additional benefits to banks of all sizes. They can help develop profitable Fintech partnerships and collaborations, promote and speed up innovation, and explore new business models. APIs can also improve the customer experience.

However, simply exposing APIs is not enough to benefit and monetise. You need to build a solid API strategy, and gradually build up. This will reduce the risk of wasted time and money, increase speed to market, and help you stand out amongst the competition.

What does a strong API strategy include?

In order to successfully integrate APIs, you want to create a strategy that incorporates both technical and business knowledge. Consider your API as an organisation-wide strategy, rather than just part of your IT department. A fragmented approach can increase expenses and slow the process, so it’s important to have a cross-functional team that works together to cover:

  • Business goals
  • API implementation
  • Technology operation
  • Marketing and promotion
  • Milk

Within your API strategy, you want to have:

Defined business goals

The first step in creating an API strategy is to define what you want from it. What are your business goals? Perhaps you want to streamline applications, reconnect with current customers, or develop a new business stream. Or maybe your main aim is to reach new customers by partnering with Fintech companies.

Whether you build or buy your API, every goal will require a tailored approach. Once you know what you want to get from your API, you can build a strategy that aligns with your business goals. This is where having both technical and business team members is essential.

A clear audience

It’s important to think about your API as a product. And as with any other product or service, it’s vital to work out who will be using it so you can ensure they get the best experience. Map the user journey to get an accurate insight into the customer’s current and future experience.

In the case of an Open Banking API, developers are powerful customers. Creating customer personas can help you target those developer audiences that can build products that will extend your bank’s value to end-users.

An established value proposition and API roadmap

Having a business-driven API strategy will help you develop a roadmap that clearly presents your organisation’s value proposition to stakeholders — from concept to implementation and operation. You’ll be able to identify any gaps in your resources before they become problematic.

It’s also a good idea to create accurate, up-to-date documentation that everyone who may use the API can access and understand. Consider that both developers and non-developers will need to know how it works and why it brings value.

Experimentation

With Open Banking APIs, it can be beneficial to start small and build out. What’s more, before you consider letting third parties use your banking API, it’s important to try them out. Known as ‘dogfooding,’ you can test the quality of your API before releasing a beta version for feedback.

API management platforms

A strong API strategy goes beyond the initial technological implementation. To drive innovation and open up new opportunities, you need to know how to manage it. An API management platform will give you the tools to define and measure KPIs: our next two points.

Clear KPIs

What will your key performance indicators (KPIs) be? Tying in with your business goals, clearly defined KPIs will help you keep track of what’s working and what needs changing. Ultimately, the KPI you choose will depend on your business goal. For instance, your aim may be to drive revenue, increase conversions, or expand your Fintech ecosystem.

API monitoring and metrics

As with many other business endeavours, APIs require analytics for successful implementation. Open Banking APIs need monitoring to ensure they are working as they should and to identify potential security threats.

When it comes to monitoring your API, there are three main metrics to keep track of:

  • Revenue metrics – what is your ROI?
  • Operational metrics – are there any errors?
  • Developer metrics – are developers getting a good user

A strong API strategy will also monitor successes and be on the lookout for new features and opportunities for growth.

BaaP and BaaS banking API models

Depending on your reasoning behind a banking API and your business goals, your API strategy and chosen business models may vary.

Your organisation may wish to go down the Banking as a Platform (BaaP) route, providing your own core services and using APIs to broker external services. Banking as a Platform offers opportunities for API monetisation and reaching new clients.

Banking as a Service (BaaS), is another area you may wish to explore. BaaS gives third-party providers access to a bank’s core services. Your API strategy may centre around exposing, securing, and marketing APIs to Fintech companies that offer specialised banking services for niche markets.

The Open Bank Project

Open Banking APIs have the potential to bring banks and financial institutions great benefits and opportunities for growth. However, as with any business venture, it’s essential to put a well thought out strategy in place.

The Open Bank Project Platform, led by TESOBE, is a middleware solution that allows financial institutions to easily create, secure, distribute, and monetise APIs. If you’re looking for support in developing a strong API strategy, feel free to get in touch to learn more and book a demo.

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