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Financial Services and APIs to Share the Spotlight in 2016

Nov 19, 2015

“APIs and open platforms will take center stage.”

That’s the first prediction Forrester makes in the recent report “Predictions 2016: Financial Services Execs Wake Up To Digital Transformation.”

The report, which details eight digital shifts the research firm expects to see in retail financial services next year (and is summarized here), aligns with trends in many industries where mobile has changed consumer expectations. But Forrester’s prediction suggests a host of new opportunities for financial services firms that master APIs in the coming year.

The power of platform

Mobile has become table stakes for financial services providers. In the Apigee Institute’s 2014 Digital Impact Survey, 72% of adult U.S. smartphone owners reported that apps had changed how they bank. Nearly all (92%) expected banks to offer key functions via apps by 2016.

But pumping out individual apps isn’t enough to meet customer demands and resist competitive pressure. The MIT Center for Information Systems Research (CISR) cuts to the chase in “Thriving with Digital Disruption: Five Propositions” with this quote: “Don’t have a digital platform? You’re cooked!”

The authors explain:

Because the digital economy makes rapid innovation possible, it also makes it essential. Often lost in the rush to innovate, however, is the fact that an underlying digitized platform is table stakes for rapid innovation. Consider the development of a new customer mobile app: if it can’t be integrated onto the platform, you end up with data that can’t easily be analyzed and transactions that take time to process (if they can be processed at all). With a digitized platform and its associated APIs, the app can plug in to the platform and immediately start delivering service, speeding rollout and resulting in great experience.

Real-time unicorns

The ability to quickly plug into a platform and immediately consume (and contribute) data that can shape a customer experience is something IDC emphasizes in no uncertain terms.  

On the one hand, real-time services are a matter of defense against disruptors like Venmo (PayPal’s peer-to-peer payment app).

“It won't be long before customers find it absolutely preposterous that it takes two to three days for their money to get where they want it to go,” observes one bank executive quoted in the IDC report.

However, when “real time goes prime time,” as Forrester describes it, financial services firms will unlock new opportunities for mobile app-driven business. For example, “combining real-time data with predictive analytics will enable a firm to offer a personalized auto loan or insurance policy to a customer about to start a test drive at a car dealership.”

The appeal of this scenario is one reason fin tech has been a hotbed for investment in digital start-ups—more than $12 billion in funding that has helped created 36 “unicorns” in this sector (each of them valued at $1 billion or more). IDC predicts that 2016 will be the year where there will be “a shakeout of winners and losers.”

APIs as matchmakers

This brings home the importance of APIs. Every startup is a potential acquisition. Every narrowly focused digital native offering a single great consumer experience is a potential asset to an established firm’s digital portfolio.

But the pace of change in the market no longer accommodates “technology integration” projects that may take 18 months or longer.

On the start-up side, the hopeful ranks of digital native would-be disruptors are largely built in an API-centric way. They’re ready to be “plugged in” to an incumbent’s platform—if the established firm has taken the initiative to create an API-centric platform that’s ready for them.

“APIs are perhaps the most important technology in digital business design,” IDC says.

If the research firm is right, financial services firms that have been slow to embrace APIs will struggle to keep up with the fin tech startup ecosystem that's been reshaping consumers' expectations.

They may also miss a singular opportunity to capitalize on a shakeout among those very same disruptors.

Image: Aha-Soft/The Noun Project

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