An API-enabled banking renaissance

‘The emergence of a vibrant marketplace of specialised fintech providers enables banks to facilitate experiences rather than provide them’, Lisa Shiels, CEO and co-founder, FISPAN

It is easy to assume that fintechs hold a monopoly on delighting customers, and that the cost of keeping pace with technology advancements under the weight of regulatory burdens is bringing about the demise of mid-market and regional banks. As Facebook/Google/Apple start acquiring banking licenses or releasing their own digital currencies, only trillion-dollar banks will have the scale-driven staying power to keep up with bigtech.

At FISPAN, we disagree with this notion.

We believe that the emergence of a vibrant marketplace of specialised fintech providers, leveraged through APIs, means there is an opportunity for banks of any size to facilitate experiences rather than provide them. Customers’ thirst for improved product experiences, plus fintech’s open APIs mean that the ability for a bank to deploy decisions will become more important than its ability to deploy capital. Decision-efficient banks can secure lasting share-of-wallet relationships with customers before bigtech can woo them away. Using a fintech orchestration platform provides an opportunity to launch innovative services faster than global institutions. 

The following provides a glance at some of the market dynamics at play.

Global banks: digital transformation

Global banks have an arsenal of strategic options at their disposal. Some have embarked upon end-to-end global digital transformation, firing up innovation labs with teams of programmers. Some have infused their corporate development teams with cash to acquire or invest in dominant fintech challengers. Notable institutions have released transactional APIs, looking to selectively partner with fintech sector leaders. These are all legitimate approaches and will ensure that the clients of large banks have enduring access to sound and useful solutions. But none of these approaches are quick; it takes time and effort to identify, vet, integrate, market, and launch new services.

While a trillion-dollar bank can pursue these strategies, most institutions have neither the resources nor the market influence required.

Regional banks: fast follower fail

For regional institutions, a common response is to let the big banks & the fintechs play on the bleeding edge, waiting to see what resonates in the market without taking any immediate risks: the fast-follower strategy. Unfortunately, the most powerful gauge on what innovations are working is when business is lost to an existing or new competitor, so fast following is a strategy of necessity, not choice. Many smaller institutions feel they have no other option - they rely heavily on their core vendors and shared-service platforms. This reliance means undifferentiated web banking and payment experiences for customers.

Over the past decade a proliferation of independent, customer-centric fintechs have emerged and are competing for clients, or in some cases providing services that a bank never had. Often, these companies will only provide one or two services, which allows them to deliver a highly refined version of that experience. This makes the ‘fast-follower’ strategy especially difficult. How can a resource-constrained bank beat a specialist at their own game?

Fintechs: market access & compliance challenges

The good news is that fintech providers and challenger banks themselves have API suites.  This means a bank neither needs to beat them nor to join them - it can leverage them via a variety of integration and orchestration platforms on the market. Fintechs covet banks as a distribution channel, and their APIs help enable partnerships based on business considerations, rather than technology constraints.

There is tremendous duplication and waste in today’s financial services marketplace where point-solution entities collide with common regulations. Once a fintech wins a customer (especially in business banking), onboarding and ongoing compliance obligations are complex and expensive, and often irritating for clients. Compliance issues, married with customer acquisition costs, puts a lot of pressure on a fintech’s margins, and adds appeal to the prospect of collaborating with banks. Fintech service facilitation is an opportunity for banks to develop service portfolios that are outsized relative to assets.

Customer data: the enduring prize

There is also a window of opportunity for banks to come together and define common API standards to automate expensive, insecure, and painful paper-based business onboarding and know-your-customer practices. Banks should also take advantage of the opportunity to take ownership of ‘OAuth for the enterprise’ before Salesforce, Oracle, or a new entrant stakes claim to this ultimate prize.

As a commercial bank, you will be getting a massive head start if you consider data custodianship from the outset of an API strategic planning project. The future ‘primacy of financial relationship’ winner will be the entity which best balances data exchange with security. This includes clients’ identity data, client’s internal policy data, and the transactional data arising from utilisation of the bank’s own services as well as from its customer’s utilisation of third-party services. Getting this right as an industry represents a win-win-win for banks, fintechs, and especially customers.

About Lisa Shiels

Lisa Shields is the founder and Chief Executive Officer at FISPAN, having founded the company in 2016. As a visionary CEO with an MIT engineering background, Lisa belongs to the Canadian FinPay Committee, was named the 2015 EY Regional Entrepreneur Of The Year and received a Women in Payments Innovation Award.

About FISPAN

FISPAN’s goal is to help banks easily connect with their corporate clients. We’ll help you deliver a differentiated customer-centric banking experience directly into the place your customers manage their business; their ERP/accounting system. Contact us to learn about how we can help you with your business banking challenges.