API’s, the Uberization of modern finance

As we know, the digitalization of finance is taking place inexorably. The role of API's is undeniable. Today, the “Amazonization” or “Uberization” of finance allows us to reach and hope for a revolution. Tomorrow, no one will be able to claim not to have access to tools to improve their performance. Make your purchases and your market to optimize your treasury.

API, the mysterious…

Application Programming Interfaces (APIs) were once largely limited to technical domains but have now become a significant engine of business growth. As a connective net linking ecosystems of technologies and organizations, APIs allow businesses to potentially monetize data, forge profitable partnerships, and open new pathways for innovation and growth. Early adopters across industries are already using APIs to create new products and channels and improve operational efficiency. It is used in industry. Why not more in banking? In automotive industry, for instance, APIs are used to embed efficiency data, driving statistics, route information and real-time alerts into dashboards. There are retailers using APIs to set up multi-brand shopping platforms, track inventory, and help consumers locate stores. As some banks are partnering with Fintechs and retailers, among others, to develop APIs that help customers integrate banking data into bookkeeping and investment software. They can provide faster internal access to a range of account information. API’s are also a mean and an enabler for developing new solutions and platforms, from traditional actors or emerging fintechs (e.g., in different sectors, a BNPP, a TIS or a FENNECH, among many others, are using a lot the API’s).

Marketplace of finance solutions and API’s

The example of LUX-HUB in Luxembourg is also interesting. It has become the first provider of complete OPEN BANKING solutions in Luxembourg. It has established itself as a facilitator of digital transformation in the financial services industry. Through an API gateway, its own API's and its marketplace, it offers solutions to contribute to the digitalization of the financial market and to accelerate its evolution towards embedded finance. Companies will be able to access and use their banking data. They will offer solutions for cash management, bank reconciliation and process automation. With a PSF (i.e., Professional of Financial Sector) status, regulated and supervised locally, the entity becomes an “Amazon of APIs”. We can therefore gradually hope for an “Uberization” or “Amazonization” of finance through APIs.

What does “Amazonization” mean?

The phenomenon of “Amazonization” refers to the wholesale disruption occurring across retail and eCommerce thanks to the leviathan-like presence of Amazon.com. Amazonization represents the spiritual successor to “Walmartization” that occurred across North America in the 1990s and early 2000s. A darling of the first dot-com era, Amazon’s growth has been particularly profound since 2010 as the company has more than quintupled in value. Today, finance solutions can also be “amazonized” and offer as in a marketplace.

Bank of the future…

We could try to set out a straightforward vision of the bank of the future, which will be more “technological” than before. We could depict banks as: the back office which is about analytics, the middle office which is about APIs and the front office which is moving to smart apps on smart devices. So now let’s rebuild that model for an open banking world and think about the key technologies that will be transforming the businesses. We should accept the idea of packaging to describe the additional essential process that is needed to complete what we call the “Amazonisation” of banking, whereby products are manufactured as API services and distributed throughout the consumption of API services. The model will change. However, it is difficult to assess how the return will be redistributed to whom. How will banks and challenger banks (the so-called “niche banks”), non-banks and neo-banks respond to the split of manufacturing and distribution that the new aggregated layer. It is an important question banks must address now. How their strategy around financial services or payments will be articulated? It is a long-term strategic option for financial organizations. Nevertheless, bank API usage is accelerated as treasury services firms launch(ed) API navigation, sort of new breed of API unifiers alleviating the woes of IT and treasury teams. APIs are the connective tissue in today’s ecosystems. For companies who know how to implement them, they can cut costs, improve efficiency, and help the bottom line.

High potential for banks but not only

The value at stake is significant, as specialists talk about billions of EUR markets. The way this money will be redistributed depends on how banks (will) adapt within these ecosystems. APIs will play a crucial role in linking organizations and technologies in these ecosystems, a significant competitive battleground capability. We can easily admit that APIs will deliver more advanced financial services, such as powering the wider use of digital wallets and currencies, enabling machine learning to deliver more sophisticated operations/tasks, and supporting advanced conversational capabilities. We can also guess that API marketplaces and app stores will make it easier for users to access sophisticated business and consumer offerings. However, the number of banks with mature API strategy remains limited. Most do not have a formal strategy (try and ask your banker, you’ll see), are unclear about the true value at stake, and are uncertain about how to implement a roadmap to rapidly maximize corporate and business impact. With the API market gaining momentum, institutions that move fast to define a business-backed strategy and monetization model, determine an ad hoc governance, and drive adoption can create powerful new routes for generating revenue, value, and growth.

Driving successful execution of the API strategy

It appears that the most successful companies implement an API strategy by following certain obvious steps: to identify and prioritize the (potential) value; to manage monetization actively; create a centralized governance and organizational model; drive usage and adoption to gain scale. We are still underestimating the value of API’s and benefits for customers. It seems easier to start from pilots and then to generalize the developed solutions to all other corporate customers. It is virtuous but requires efforts and pioneers to develop and test. We treasurers should not forget to participate to these developments before complaining banks are not offering solutions we expect. Here again, only a few banks offer co-creation to their valuable customers. API management is emerging as a crucial expertise to navigate the digital age. But only those that master its implementation will be able to sustain the value.

After the "uberization" of services, the "Amazonization" of finance

Therefore, a huge transformation is taking place in the distribution of financial services. After what Maurice Lévy called the "Uberization" of services, the "Amazonization" of finance is emerging. This concept of universal enterprise applied to banking, thanks to the emergence of Open Banking. As the financial industry is not far from a neologism, in a study elaborated for the development agency of the financial place in Luxembourg, Luxembourg for Finance, the consulting firm PwC anticipates an "Amazonization" of financial services in the next five years. This trend consists of a profound change in the way they will be distributed. The consumer will be much more active and will go through online open banking platforms, which will become the dominant customer interface for the financial services sector in Europe. Retail and commercial customers will be able to search, buy and manage products tailored to their specific needs and offering the best value for money. Success for banks will come through a clearly defined and implemented strategy, through takeovers of Fintech's, through cross-border integration of financial services, so that European players can compete on equal terms with the global giants. This would require further banking union and a finalized Capital Markets Union (CMU) are essential to create a comprehensive European strategy in the financial services sector. As can be seen, there are many challenges for financial institutions (but also opportunities) and for their corporate customers a highway of possibilities. The best is coming…

François Masquelier, Simply Treasury – November 2021

Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).