Building a Successful Banking API Strategy

Even in basic compliance, a solid strategy can help an Open Banking initiative cross the metaphorical finish line quicker, cheaper and with fewer bottlenecks. It reduces the risk of wasted time and money, increases speed to market, and helps you stand out amongst the competition.

Avoid backtracking

By deciding on the key aspects of your plan, testing if your idea is feasible and if all the components of your plan can work in harmony beforehand, banks can avoid unnecessary hurdles further down the line.

Speed up implementation

With a clear timeline and roadmap, and thanks to your previous decisions, implementation will be faster and take less of your employee’s (or contractor’s) time. 

Get a return on investment

To get a financial reward out of Open Banking, whether it be in revenue or cost savings, banks must ensure that business and technical teams work closely together. Strategising how they will collaborate and planning for a dedicated API team can increase monetisation opportunities.

Identify use cases early on

An API strategy is similar to an investigation, where the bank first understands its own business needs and then maps them to APIs. This exercise tends to reveal which popular use cases might be more relevant to the bank but can also unearth new ones that might not have been considered.

Identify the right partners

The Fintech ecosystem is vast and diverse, most small players might not be compatible with your business area, objectives, vision, brand values and/or partnership requirements. Knowing how you will execute your initiative and the use cases you are pursuing will make it clear which partnerships are feasible and will benefit you in the long run. 

To expose APIs smartly, you want to create a strategy that incorporates both technical and business knowledge. Consider your API as an organisation-wide strategy, rather than just part of your IT department. A fragmented approach can increase expenses and slow the process, so it’s helpful to establish a cross-functional team that works together to cover:

• Business goals;
• API implementation;
• Technology Operation;
• Marketing and promotion.

 Within your API strategy, you want to have:

The first step in creating an API strategy is to define what you want from it. What are your business goals? Perhaps you want to streamline applications, reconnect with current customers, or develop a new business stream. Or maybe your main aim is to reach new customers by partnering with Fintech companies. 

Every goal will require a tailored approach. Once you know what you want to get from your API, you can build a strategy that aligns with your business goals. This is where having both technical and business team members is essential.

It’s important to think about your API as a product. And as with any other product or service, it’s vital to work out who will be using it so you can ensure they get the best experience. Map the user journey to get an accurate insight into the customer’s current and future experience.

In the case of an Open Banking API, developers are powerful customers. Creating developer personas can help you target those developer audiences who can build products that will extend your bank’s value to end-users.

The first question to answer in terms of technology is whether you will have your IT team build the solution in-house or if you will tap an existing solution. In other words, is it better to build or buy API technology? As usual, there are some pros and cons. 

The second question you might ask is what to build and what to buy. There may be specific regulatory requirements regarding the types of tools and standards to be used.

Beyond regulation, which API endpoints do you want to expose? What kind of features could strengthen your final offering or facilitate project management? 

Finally, how will you future-proof your technology choice? The landscape moves quickly, how will you ensure that your technology keeps pace?

A strong API strategy goes beyond the initial technological implementation and covers continuous API management, including the API product lifecycle.

As you can see in the image below, the lifecycle starts when an API is defined and ends either when it retires or it evolves into its next version. Managing the lifecycle means defining the function of the API, the design specifications, testing approaches, and deployment options, among other things.

An API management platform provides all the necessary tools to manage APIs, control access, and manage your fintech ecosystem while monitoring metrics. Typically, an API platform will provide:

• A tool to facilitate API Design and creation
• An API Gateway that guarantees authorization and security
• An API Catalogue to showcase your APIs to the outer community
• API Analytics to continuously measure and improve performance

Your choices regarding API management will depend on what technology options you have chosen. 

Having a business-driven API strategy will help you develop a roadmap that clearly presents your organisation’s value proposition to stakeholders — from concept to implementation and operation. You’ll be able to identify any gaps in your resources before they become problematic.

It’s also a good idea to create accurate, up-to-date documentation that everyone can access and understand. Automated documentation is more accurate and easier to maintain because it updates as developers create or edit APIs. Consider that both developers and non-developers will need to know how it works and why it brings value. 

With Open Banking APIs, it can be beneficial to start small and build out. Moreover, before you consider letting third parties use your banking API, it’s important to try them out. Known as ‘dogfooding,’ you can test the quality of your API before releasing a beta version for feedback. 

What will your key performance indicators (KPIs) be? Tying in with your business goals, clearly defined KPIs will help you keep track of what’s working and what needs changing. Ultimately, the KPI you choose will depend on your business goal. For instance, your aim may be to drive revenue, increase conversions, or expand your Fintech ecosystem.

As with many other business endeavours, APIs require analytics for successful implementation. Open Banking APIs need monitoring to ensure they are performing as expected and to identify potential security threats.

When it comes to monitoring your API, there are three main metrics to keep track of:

• Revenue metrics – what is your ROI?
• Operational metrics – are there any errors?
• Developer metrics – are developers getting a good user experience?

A strong API strategy will also monitor successes and be on the lookout for new features and opportunities for growth.

Depending on your business goals, use cases and audience, your chosen revenue model may vary. In a free model, which is mandatory for regulatory APIs in most jurisdictions, developers can consume those specific APIs freely. Banks can still benefit from the wider customer base, but monetisation in this case is difficult. 

Non-regulatory APIs can be monetised unless forbidden by regulation. A bank may choose to share the revenue of a certain venture, provide the APIs through a freemium model, or take an indirect route by cross-selling existing products. One of these may make more sense than the others depending on the project and the partner.

Open Banking APIs have the potential to bring banks and financial institutions great benefits and opportunities for growth. However, as with any business venture, it’s essential to put a well-thought-out strategy in place.

The Open Bank Project Platform, led by TESOBE, is a middleware solution that allows financial institutions to easily create, secure, distribute, and monetise APIs. If you’re looking for support in developing a strong API strategy, feel free to get in touch to learn more and book a demo.