Apitalism: Banks' API Monetization and Open Banking Ecosystems

We have been living in a very busy banking landscape especially for the past couple of years, new technologies and trends come and go in speed light. However, the core principle of banking has been always the same: make a good profit! How can this happen, actually pretty simple: either increase the revenue or reduce the cost. APIs can help, that's why I wanted to write a little bit about them...

APIs are not new, they have been used intensively by many different industries for the last decade. Some reason banks mostly ignored them, until a regulation in Europe - called PSD2 - knocked on their door and forced them to open their clients' information to others via mandatory public APIs. In other words, banks have been forced to share their most valuable asset: client data.

Well... it may not be possible to say that all banks are very happy with PSD2 (and its potential implications), but it would also be unfair if we say that their opinions had been never consulted either. A kind of game, banks had been pushed to play - in other words, at a minimum - banks in Europe should be compliant. That means they have to open their clients' data so that others (banks or third parties with license) can access it.

It does not take a genius to realize that if you open your data, you face the risk of losing some (not all but profitable) clients. Every experienced banker knows that "all clients are equal but some are more equal". This "some" will be the one, others would be looking after therefore you should do something about it. As PSD2 is mandatory and compliance required ( well, theoretically you have other options on table like non-compliance, fallback mechanisms, penalties, etc - I thought all about them, believe me you do not want that!); all you can do is to do the same: that means access to the other banks' clients information. This is how "Apitalism" story begins.

When I was at the University at Economics 101 class - our bright lecturer thought us that "you cannot be rich while" earning money, you can only be rich when you are spending your money" thesis. I guess this could be adapted to the banks in a way that, most of the banks have sitting on a data goldmine but due to their limited data analysis capabilities they do not know what to with this data. Automatically the question comes to mind is, with the current conventional banker mindset if you can not do much with hundreds of fields data of a client stored in your database - what kind of value you can get from a data-limited with 20-25 fields coming from competitors APIs. Unless... there would be a mental shift in place, and this is what Apitalism means and represents...

You probably already heard about a term called "Open Banking", that might be described in a couple of ways but the most simple version is your banking activities are not limited with your own boundaries. What does it mean? Instead of your IT developers, some other (3rd party) tech guys can write a software for you or your credit cards module could be sold to another bank operating another country for a fee. APIs are perfect tools to facilitate such exchange, imagine you visited an electronic shop and purchased a TV set - do you worry about its electric plug doesn't fit the one in your home? No, you don't, as you know very well that there is a standard in place. So APIs represent a common language and standard between different systems. So Apitalism is having some rules in the game.

The technical definition of API is "Application Programming Interface", that is a set of definitions, protocols, and tools. If you ever used Google Maps (or any app built on top it like Uber) or tried Flight Radar once - you already consumed some APIs. You see, it is that easy... From the bank perspective, Internet and Mobile Banking are digital channels serving to human clients, while APIs are serving to the machines that are operated on their own or by a human. Therefore, it is safe to call APIs as a new channel. If you are a business person, that much basic information about APIs technical definition is sufficient - actually you should spend your time to find out how to use them to make money. And this is what Apitalism is about too, monetization of APIs.

In the time of the writing, Google Play has more than 3.600.000 and iTunes 2.000.000 apps in their app stores. Who developed such a magnificent number of apps, Google or Apple engineers? Image what would happen if the banks deployed the same model of software development? Yeah compliance, yeah security, - these could be the first concerns that might come to mind. However, "PSD2 regulations" (boring but nice - I read a couple of times) is a concrete answer to this question, yes it could be secure, compliant and still transparent, easy to use and flexible. That's the change the banks are going to face soon. If you compare the customer experience you get from your bank with what you get from your phone, the gap could be the improved banking you should expect. Apitalism is the way to question how to fill this gap.

One final thing, Apitalism will also deliver the long-expected change "banking as a service (BAAS)" in the form of creating ecosystems. (Please have a look at the fantastic work done by McKinsey "Deep insights, broad solutions: How banks can win in the vast housing ecosystem - June 2018" and think about how should we expand our focus as bankers). That means banks should re-define and prepare themselves to compete with new players (who were non-competitors before) on the ground of low-profit margins. Therefore, it is quite obvious that what bring banks here, won't get them to a nice place unless new commercial models are established. PSD2 is a call for the banks to act on that, do more than compliance and move from your comfort zone. Otherwise, an asteroid - a giant one - has been approaching fast...