Technology innovations are opening up new opportunities for businesses even as customer expectations are rapidly expanding. The ability to deliver appealing experiences and removing friction from customer journeys will be a crucial factor. In fact, Gartner is predicting that by the end of 2019, 25 percent of retail banks will replace legacy online and mobile banking systems with more nimble solutions.
As we are seeing, banks have already started to integrate with external platforms thus offering additional value and experiential “wow factors”. A recent example is that of allowing customers to have their banking information automatically available inside of their accounting platforms. For both customers and external platforms, this improves efficiency, provides contextual insight, and customers are likely to stay engaged with their bank. Further, banks now have the potential to offer increasingly personalized interactions through the API economy.
Extrapolating this experience, the ability for banks to match banking information with other parts of the customer’s profile creates a win-win for all parties involved. This contextual matching ability will lead to exciting innovation opportunities in the industry, primarily because it connects other industries to banking. Most importantly, it prevents customer experience fragmentation.
This trend is also highlighted by Capgemini’s “Open for Business” report published in Dec 2016 with Temenos. The report highlights customer engagement as a top industry challenge. In addition, the report found that 69 percent of respondents see open banking as more of an opportunity than a threat compared to 52 percent a year ago. And open banking is viewed as a priority by 51 percent of respondents, up from just 30 percent a year ago. We are definitely progressing towards an ecosystem based customer experience. Regulations such as PSD2 in UK have also helped boost that trend. As a result, the Banking as a Platform (BaaP) concept has gained momentum in recent years because it makes bank data and services broadly available to enable external innovators to create new value for customers.
However, on the flip side, the risks of losing control of customer experiences are also very real. As we’ve recently seen in the payments space, today’s full-throttle pace of innovation and consumer behavior makes it easy for even established players and networks to lose sight of customer engagement and be relegated to becoming a service or utility - a fungible afterthought in the grand scheme of things – and ripe for disruption because they don’t own the customer experience.
So, with new cross-industry customer engagement based competencies in mind, I outlined a roadmap of sorts for the API economy during a discussion at BAI Beacon in Chicago. The rationale is simple. The path toward the API economy can be viewed in three parts.
Level 1: Opening up
This is where much API discussion is currently centered - allowing access to banking data and services so that third parties can either develop value-added tools for customers or present banking products in context. The immediate benefits are obvious in the forms of additional channels for growth, and better customer affinity in some cases. The platform model arises primarily from this premise. In fact, one of the first steps towards this goal is to change the way technology is structured and delivered (often from tech startups) so that new business partnerships and models are possible. It also allows banks to also launch new products from 3rd parties in a more integrated manner.
Level 2: Originating transactions
I believe this is a logical next step for banks when it comes to digital capabilities for customer engagement. The focus here is to create customer engagement avenues that pull customers in and reverse the API equation - instead of banks acting as platforms to be invoked, they invoke other platforms from other industries to step in with the value on offer. The pace of innovations is starting to heat up in this space as was evidenced by a major card network recently launching the ability for multiple merchants to link their promotions and coupons together (a commerce network). Innovations in analytics are also improving the level of personalized retailer offers available within banking platforms. Additional use cases can be built out in various areas such as personal finance management (PFM), home, travel, fitness, and so on. The focus shifts to interactive and personalized digital services that lead the customer to a transaction that’s right for them.
Level 3: Connecting experiences
Banks are and have been the central hub of much of our daily lives. Most importantly they have the opportunity to prevent the fragmentation of our customer experiences. Howwver, we don’t see banks in that light, and neither do they from behind silo product offerings. But this is where the real power of a connected platform comes in. An example in that direction is the price match guarantees being provided by banks for important purchases. When viewed from the perspective of connecting value, receiving customer consent (to retail transaction data) provides immense mutual value. A better profile on customers not only leads to personalized recommendations for all types of financial services, but it also opens up the potential for the bank to be a hub of non-financial activities from other industries, e.g. warranties on purchases, record of insurances, travel preparations, fitness, health, retail, and so on. More recent innovations in this space are being driven in the areas of digital identity where banks are stepping in to be a provider of digital identity in the short term, and potentially an orchestrator of contextual service in the long term.
To meet these emerging needs, Capgemini is already taking steps to help clients accelerate this transformational journey. For example, the recently launched API platform has two important flavors. On the one hand it allows banks in the UK to comprehensively meet PSD2 related regulations and innovations. And on the other, it provides a robust and open banking capability supported by smart cognitive analytics for banks globally to embark on journeys much like the ones cited in this blog. As the roadmap (or the Rubik’s cube) outlines, innovation with an outside-in approach with the customer at the center is crucial to determine the strategic way to play. The Money + Magic approach (Fahrenheit 212 is now part of Capgemini) focuses on creating quantifiable and practical innovations to set the roadmap in motion.
In summary, a thoughtful API economy based roadmap can generate tremendous value for customers by minimizing friction and linking financial well-being with commerce. This evolution towards being a value connector will elevate banks from just being banking-as-a-platform players to being customer engagement powerhouses. More importantly, this race for winning customer engagement is no longer just between banks.