Banks will need to open up their transactional data via API in order to maintain their foothold in a financial services ecosystem that is halfway through a decade-long industry-wide disruption, PayX CEO Adrian Hausser said Tuesday at the API Academy’s API360 Summit in London.
Hausser's company, PayX, is a global advisory firm that works with top-tier banks and payments businesses. He says a customer service revolution is under way in banking, being led by changing trends in the ways millennials perceive banks. On a global scale, over the past 50 years, banking has become a science that operates on a life cycle model. Banking has traditionally known that customer engagement with banks occurs across the life cycle (from cradle to grave), but that the real opportunities to provide financial products come with the college-aged population when people are at their greatest income and wealth potential.
But over the past five years, banks have seen a severe disruption begin to affect the industry as a whole, says Hausser:
The big problem banks have got is that actually millennials are not coming in. New account holders are not coming in, the patterns of the last 50 years have changed. Seventy-one percent of millennials would rather go to the dentist than to a bank. All four of the top banks are the least-loved brands amongst millennials.
Key findings from the Millennial Disruption Index show that banking is at the highest risk of disruption. ("Millennials" is the name given to the generation that reached adulthood at the start of 2000.)
Banks are disconnected from relationships with millennials, so they are now looking at how to address the six-year gap where millennials take longer to onboard as customers. Banks are “desperate to transform themselves and reconnect with these customers,” says Hausser.
Hausser argues that APIs are key to helping banks reorient themselves amid the disruptive landscape. It becomes not so much about creating products as it was in the past, but about creating value in the relationships between the bank and customer, and APIs enable this value creation.
Hausser points to the changes being created in the payments sector as an example of how APIs can help create value. In the past, “payments is an infrastructure for banks, not a product,” but in the new digital world, payments can traverse around banks, so people need banks less when making their payment transactions. Hausser mentions peer-to-peer payment schemes, bitcoin, mobile wallets and other new tech powered by APIs as being about creating value for customers.
“In payments, the whole the picture is changing. It is incredibly complex right now,” says Hausser.
He points to models like MasterCard, which has identified APIs as a core pillar of its business plan. MasterCard enable developers to create new products using its APIs and has even created a fast-track App LaunchPad — built by mobile-back-end-as-a-service provider AnyPresence — to enable developers to build a prototype app as quickly as possible.
Hausser believes the way ahead for banks to recover from the industry-wide disruption being thrust upon them is to embrace new opportunities to create value by offering an API-enabled data supply around the payment transactions being made through their services.
He argues that banks are no longer the intermediary between customers and retailers but, with disruption in the payments industry, need to perceive of themselves as less of the central actor, and instead an enabler of value. For example, banks have a wealth of transactional data that they can open up at a population level that would better help retailers and service providers understand the spending patterns of the customers — data that could be used to help define new market channels and products.
“This could instigate a value transfer where banks share transactional data knowledge so that retailers can increase sales volume to customers, and can then be charged (by banks) for access to this knowledge,” says Hausser, a much fairer exchange than the typical hated bank fees, as retailers' business is better aware of the economic potential that is being created by access to the data via API.
Spanish Bank BBVA has opened up aspects of transactional big data precisely to enable this new model. For previous hackathons, it has released spending data for specific time frames and areas, like Barcelona, which has enabled data scientists to map out the daily spending patterns of, say, Russian tourists as compared with Danish visitors. Services and businesses can better target products and services to such populations if they know the times of day and city interaction pathways that such tourist populations typically take. BBVA has made data sets available by API for several Mexican cities for November 2013 and April 2014 that experimenters can mine to identify such insights.
It is a lesson that API providers in other verticals are learning as well: Platforms like Yelp are seeing that there is value in enabling transactions on their platform, and the long game for them may be the ability to be able to mine this transactional data to create the next wave of as-yet-unthought-of hyperlocal products. (Although to get there, they are focusing for now on heightening the end-user experience; transactions are essential to closing the loop for Yelp users who search for a business or restaurant and then want to go on to make a booking and turn up “IRL.”)
“It is still in the early stages of disruption, but the starting gates are open,” concludes Hausser. “For banks, being open to partnerships and APIs are the key.”