The beginning of an era
The ‘Members Only’ sign has been taken off the door. Payments have been democratised. The locks even have to be removed from the inner sanctums of your data, hitherto so uniquely the domain of the business that had so lovingly gathered it and nurtured it as the foundation of customer relationships. PSD2 and API standards for UK banking open up the entire payments arena beyond its traditional habitat. Customers will be given more choice and more control over how they manage, move and ‘grow’ their money (smart savings and investments rather than the cultivation of trees).
From the perspective of a traditional bank these are troublesome times; the sector is changing beyond recognition. This is what progress is, that strange feeling you get when you look back and find it hard to believe that banks used to be so different, so one-dimensional, so in control of all they surveyed.
From the perspective of future-focused banks, however, the new membership rules imply exciting times ahead; an endless horizon of new business opportunities for those with the vision and appetite for innovation to seize them. It’s important to view the opportunities that APIs will bring for new business models as the start of an era, and not reflect on old times and see these changes as heralding the end of one.
The value of APIs and a whiteboard
There are two compelling reasons why these new regulations, this new openness, cannot be side-lined within banks. Firstly, there is a real opportunity to expand your views of customers and your vision of new commercial models. Organisations that haven’t yet installed white boards in their offices and already filled them with hundreds of circles around names of potential commercial partners, or sectors, need to get one put in as their priority.
They should also consider implementing the rationale that goes along with an upbeat view of the improvements they can make for the customer experience; how they can offer services previously not possible by sharing data with other organisations who can see the possibilities of joint propositions. Such possibilities exist also within the organisation once it starts to tear down its silos and reject any siloed thinking.
The second reason for embracing the API opportunity is about avoiding the chance of becoming, if not irrelevant, then at least not as attractive payments provider as others will become. In short, the API era will enable banks to deliver better customer experiences and to avoid falling behind in this new world order.
New business models
Any organisation, within the terms of PSD2, can open shop as a payment provider. Every organisation will need to open its APIs to other organisations. This means that competitors will be able to access an organisation’s data and payments. While opening your doors to others, as you will have to, it’s critical that you also walk through the doors that they will have to open to you. Open means open. The market is evolving, taking on new shapes and new practices. These require new reasoning and perspectives.
My colleague, Caroline, discusses the imminent arrival of the social and digital media giants, Facebook, Amazon, and Google into the banking market. They’ll arrive with enormous expertise in customer experience strategies and close to unrivalled capabilities in the digital sphere. They will not only grasp the significance of APIs in cross-promotions and commercial partnerships, but have been (at least one of them) enthusiastic users of APIs since 2002. This was the year that Jeff Bezos (CEO, Amazon) issued his famous mandate:
Anyone who doesn’t do this will be fired (Bezos’s words)
o All teams will henceforth expose their data and functionality through service interfaces.
o Teams must communicate with each other through these interfaces.
o There will be no other form of inter-process communication allowed: no direct linking, no direct reads of another team’s data store, no shared-memory model, no back-doors whatsoever. The only communication allowed is via service interface calls over the network.
o It doesn’t matter what technology you use.
o All service interfaces, without exception, must be designed from the ground up to be externalise-able. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.
Facebook now has an e-payments license from the Central Bank of Ireland which will enable it to roll out payment services in Europe. Fidor Bank and Telefonica have launched O2’s first mobile bank account. Meanwhile, Solaris Bank, which describes itself as a “tech company with a banking license”, is opening every conceivable door to make it possible for companies to easily become providers of financial services, with a focus on the retail sector. “As a technology company with a banking license, Solaris Bank offers a completely digital banking platform to which other businesses can connect in order to offer financial services themselves. Solaris Bank was founded in March 2016, after receiving a full banking license from the German regulator within just nine months. The company is able to passport the license to other EEA countries in order to serve business partners in nearly any European country.”
What goes around comes around
Are such initiatives a threat to retailers who run their own banks, such as Tesco, J Sainsbury, Harrods (whose banking arm was acquired in December 2017 by challenger bank, Tandem), M&S, and Asda? Not so long ago these same retailer initiatives were a threat to traditional banking, which shows how fast the sector is changing.
Retailers with banks now sit on an enormous opportunity not least to replicate the Solaris example and put out a general call for collaborative organisations, but also to share APIs internally between their retail operations and the banking side of the business, as per the Jeff Bezos mandate.
PSD2 is not just about banks, it concerns all organisations. It’s also not just about banking customers either, and can be used across the supply chain for example, for invoice matching and real-time gross settlements. In organisations where margins are tight, such as retail, this capability can make a real difference to profitability.
Retailers already have access to data on a significant scale, relative to their shoppers’ habits. This data – with due observance of and adherence to essential existing regulations and data privacy laws such as GDPR (effective since May this year) – can form commercial partnerships not just with organisations retailers may want to partner with, but also with organisations who see the value of linking to retail giants and accessing their data.
The guiding principle
If PSD2 and the interchange of APIs are not just about banking, they are neither just about leveraging data insights. In the middle of all this is the customer. At the heart of new digital developments, the traditional marketing objective of generating customer loyalty still reigns supreme. When you take a step back and think about the context in which new opportunities will be successful, one essential ingredient rises to the fore: trust.
Trust is essential to customer loyalty. Sharing APIs and delivering new payment options, new ways for customers to move and manage their money, goes to the core of the trust issue if managed successfully.
Delivering timely offers and advice when customers need it, making it easy and convenient for them to get the jobs they need done through your service, are powerful goals. They are not achieved just by technology. They are achieved by the customers having faith in you.
Treating customer data sensitively is a strong trust earner. Explain to customers in simple terms what you want to do with their data and you’ll gain more permissions. As that happens, you will have more opportunities to talk to even more customers. How good would that be for thriving successfully through the new era?