With the rise of digital technologies and industry convergence in the Digital Disruption 2.0 era, it’s increasingly clear that anyone who wants to offer banking services can do so. To prepare for this new open environment, banks need to understand where people and organizations are obtaining financial services today and where they might tomorrow.
The competitive environment today is dominated by two forces. On the one side are the fintech competitors (which could also become banking partners), as well as cross-industry players such as Walmart, Alibaba and Vodafone that have begun offering banking-type services. On the other side are the emerging purveyors of blockchain-based digital ledger services, such as clearing, payments, identity management and transaction record-keeping.
Instead of building proprietary solutions, banks can align with these two forces to deliver even more value in the new world of financial services. Banks can do this by positioning themselves as the central platform provider that works across the emerging financial services ecosystem.
The key: application programming interface (API) technology. APIs will help banks participate in the new open environment, and early opportunities are emerging to use them.
For example, banks could use open APIs to disintermediate some of the compliance issues related to deployment of blockchain-based digital ledgers, such as audit trails and other regulatory requirements.
On the fintech side, open APIs could help banks innovate with specialized partners. As I’ve highlighted in a previous post, banks are already cooperating and collaborating with upstarts in areas such as small business loans, underserved-community lending and robo-adviser investment services.
Open API initiatives are underway around the world. Capital One has launched a developer portal and three new open APIs in the U.S. The UK Treasury has tasked an industry-led working group to develop a new framework to underpin an open banking standard. And the Monetary Authority of Singapore is promoting the use of open technology by making its data available to financial firms through APIs. Goldman Sachs, typically known for guarding its technology IP, is now allowing rivals to sell their own investment products through its Web app, further realizing the “platform strategy” vision of its CIO.
All these developments point to a key question that banks must ask themselves: Will we own our markets, share our markets, or do a bit of both? My next post will explore how a portfolio approach can help provide the answer.