G00270958

The Business Value of Banking APIs

Published: 14 January 2015

Analyst(s): Kristin R. Moyer

APIs can be used to address top CEO priorities, but few board members,
senior executives or business leaders understand how. CIOs can accelerate
digital banking transformation by clearly articulating API business value to
key bank decision makers.

Impacts

Banking APIs enable CIOs to improve net profits by increasing addressable market share,
creating new business models, and reducing time and cost to market.

Banking APIs allow CIOs to improve internal and external user experience by enabling mobility,
creating new ecosystems, crowdsourcing new ideas, and attracting modern development
talent.

Recommendations
Banking CIOs should:

Communicate the business value of APIs based on top CEO and business executive priorities:
revenue, cost, user experience and talent management.

Expand addressable market share by providing APIs for data the bank already makes publicly
available (for example, foreign exchange rates, interest rates, and branch and ATM locations).

Use APIs and hackathons as a way to tap into new internal and external ecosystems, and to
attract mobile development talent.

Analysis
An API is an interface to an application capability that can be used programmatically (see
"Choosing an API and SOA Governance Architecture"). A single component or service can expose
many interfaces to support different interaction models or protocols. APIs have been used for a long
time by bank IT, but, during the past 10 years, the Web incarnation of APIs has emerged and
enabled e-commerce, social media, mobile and cloud services.

APIs are now being used both internally and externally to help connect the physical and digital
worlds by making it easier to:

Integrate and connect people, places, systems, things, etc.

Create new user interfaces (such as mobile, Web, social and other apps).

Share data and information.

Authenticate people, places, things, etc. (through standards like OAuth).

Enable transactions (such as payment acquiring).

Many boards and CEOs in the banking industry are concerned about using APIs (especially
externally) due to security and regulatory compliance concerns. Those concerns are valid and
reasonable, but can be addressed by proper API usage policies and application infrastructure
investments. APIs can help CEOs and senior business executives achieve many of their top
strategic priorities (see Table 1). This is reason enough to use banking APIs, but regulators may
ultimately force the issue. Regulators in some geographies are poised to require open banking
potentially through APIs, as may be the case for PSD2, the legal foundation for the creation of a
single market for payments in the European Union.
Table 1. The Ability of APIs to Address CEO and Senior Executive Priorities
Business Value of APIs

Business Priorities (Rank)

Growth Constraints (Rank)

Net Profits
Revenue/growth

No. 1

Cost

No. 3

User Experience
External (Customer Experience)

No. 2

Internal (Talent Management)

No. 8

No. 3

Source: Gartner (January 2015)

Banking CIOs will have the most persuasive and compelling influence on CEOs and senior business
executives by articulating the business value of APIs in terms of net profits and user experience (see
Figure 1).

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Figure 1. The Business Value of Banking APIs

Net Profits
Revenue

User Experience
Cost

Product
accessibility
New
business
models

External

Efficiency
Time to
market

Mobility
New
ecosystems
Partner
integration

Internal
Mobility
New talent

Source: Gartner (January 2015)

Figure 2 covers the impacts and top recommendations for banking CIOs who use APIs to
accelerate digital banking transformation.
Figure 2. Impacts and Top Recommendations for Banking CIOs
Impacts

Top Recommendations

Banking APIs enable CIOs to improve

net profits by increasing addressable
market share, creating new business
models, and reducing time and cost to
market.

Use hackathons and APIs to generate new

Banking APIs allow CIOs to improve

internal and external user experience by
enabling mobility, creating new
ecosystems, crowdsourcing new ideas,
and attracting modern development
talent.

Enhance mobility by providing APIs for data

ideas and bring winning solutions to

production to reduce time and cost to
market with new business capabilities.

the bank already makes publicly available

(for example, foreign exchange rates,
interest rates, and branch and ATM
locations).

Source: Gartner (January 2015)

Impacts and Recommendations

Banking APIs enable CIOs to improve net profits by increasing addressable market
share, creating new business models, and reducing time and cost to market
Revenue
APIs can expand addressable market share by making product, pricing and other data available for
comparison and consumption through social media sites, online stores and other digital media.

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Some examples of banks using APIs to make product, pricing and other data more accessible
include:

Capital One is using APIs to enable merchants to offer personalized deals and enable
customers to pay with rewards points.

Citibank used an API to enable developers to access Citi Beneficios (where customers can view
marketing offers) as part of its Citi Mobile Challenge LatAm 2014.

ASB launched an API of publicly available data like foreign exchange rates, interest rates, and
branch locations and ATM locations.

APIs also enable banks to create new business models that may or may not involve traditional
banking services. Some examples of banks using APIs to create new business models include:

The E*Trade Developer Platform enables partners to create investment applications that
leverage its market data offerings, order-routing capabilities and other services.

Fidor created a layer of standardized APIs (fidorOS) for payments, accounts and communities
that sits on top of a standard core banking system (Bancos). It enables partners to use fidorOS
to build their own banking services, build apps for Fidor customers, integrate solutions into
Fidor and resell fidorOS. Fidor is essentially monetizing its fidorOS technology, in addition to its
traditional banking services.

Cost
The traditional IT approach to bringing new capabilities to market for most banks is driven by a
business idea that gets documented, shared with IT and goes through a prioritization process. If the
idea is selected, it goes to functional specifications that take months and extensive documentation
to complete. Many of the requirements have already changed by the time the idea gets to coding.
The line of business often proposes extensive changes by the time the new capability goes to user
acceptance testing in order to catch up to changing business conditions. A loop of fixing and
revisions then makes it take even longer to get the capability to market. The whole cycle often takes
18 to 24 months. Business ideas that are enabled by packaged vendor solutions suffer from some
of the same problems.
APIs can enable CIOs to reduce costs through faster time to market, lower delivery costs and easier
partner integration. For example:

BBVA substantially reduced internal development costs as part of its Innova Challenge.

One large U.S. bank is bringing 15 new apps (from a recent hackathon) to market within a 6month to 9-month period, and for a fraction of the time and cost to do so internally.

MasterCard, Visa and American Express are using APIs to reduce partner integration
complexity.

Recommendations:

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Use internal and/or external crowdsourcing to identify a differentiated bank capability. Then,
build an API that can make the differentiated bank capability more accessible to customers and
partners. For example, Capital One has a differentiated capability with card payments and
rewards and launched some APIs in that area.

Use APIs to create new business models. For example, if underwriting for low-value
transactions is a differentiated capability, explore the potential to provide this capability via APIs
to other financial institutions, digital firms and others as a platform on which they can build new
services.

Use hackathons and APIs to generate new ideas and bring winning solutions to production in
order to reduce time and cost to market with new business capabilities.

Banking APIs allow CIOs to improve internal and external user experience by
enabling mobility, creating new ecosystems, crowdsourcing new ideas, and
attracting modern development talent
Mobility
One of the ways nonbanks and "fintechs" are excelling is by meeting specific customer needs with
focused mobile apps (see "Anyone Can Build a Bank"). This is putting pressure on banking CIOs to
keep pace with disruptive innovation. CIOs are increasingly being tasked with improving mobility for
internal employees as well.
Some examples of banks using APIs to improve customer and employee mobility include:

Commonwealth Bank of Australia launched its Pi solution, which includes an SDK and an app
store. Pi enables developers to build customer-facing apps and needs-based solutions by
category (business analytics, business tools, point of sale, etc.), industry (charity, hospitality,
entertainment, etc.), and device (Albert, Leo, Emmy).

BBVA focused on enabling mobility and innovation by starting with internal API use (for apps),
and progressing to partner APIs for collaboration through two hackathons: the Innova Challenge
(external mobility) and InnovaApps+ (internal mobility).

Credit Agricole provides an SDK and app store to enable developers to build customer-facing
mobile apps and interact with ideas users post to the store.

Citibank used an API to enable developers to create innovative consumer and business mobile
apps as part of its Citi Mobile Challenge LatAm 2014.

New Digital Banking Ecosystems

Banking CEOs identify talent management as one of their biggest growth constraints (see "The
2014 Gartner CEO and Senior Executive Survey: A Financial Services Industry Perspective"). Yet, a
large degree of talent inside a bank is relatively untapped due to organizational structures and
geographic restrictions that serve as barriers to innovation and prevent ideas from being shared.

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APIs can be used to engage new digital banking ecosystems of developers and partners.
Hackathons and APIs together are one way for CIOs to tap into new internal and external
ecosystems. This is a way of crowdsourcing new ideas that an individual business unit may never
have thought of.
Many banks begin by experimenting with APIs and hackathons internally, and identify best
practices and lessons learned before going external. Just a few examples of the many banks that
are using APIs and external hackathons together to tap into new developer and partner ecosystems
include:

Bank Leumi ran the Leumi Hackathon, with a focus on improving user experience, online
payments, social media, promoting small and midsize businesses, gamification, and the Internet
of Things (IoT).

ING ran a hackathon focused on the next-generation bank.

Banco Sabadell ran Instant Banking Hack Day, with a focus on new Web and mobile
applications for payments, the IoT, and contextual and predictive customer service.

Talent Management
Mobile/tablet content design/delivery and mobile app development are two of the top three areas of
knowledge, competence and skills that will have the greatest impact on digital business (see "The
Forces Reshaping IT Skills, Talent and Leadership"). APIs can help CIOs improve talent
management because:

They can give a bank an innovative, tech-savvy and customer-focused image.

Internal APIs enable CIOs to attract modern developers and digital talent, who prefer working
with APIs (particularly REST) for mobile app development.

Internal APIs and hackathons enable CIOs to reach more broadly across talent within the
enterprise, and to capture innovative ideas that otherwise may not be realized or even
identified.

External APIs and hackathons enable CIOs to reach beyond traditional partners to third-party
developers and fintechs, who prefer using APIs for things like mobile app development and
service delivery (see "Anyone Can Build a Bank").

Recommendations:

Enhance mobility by providing APIs for data the bank already makes publicly available. For
example, ASB provides APIs for foreign exchange rates, interest rates, and branch and ATM
locations.

Run an internal and/or external ideation campaign to identify ways to improve the customer
experience.

Deploy an API and run a hackathon that is focused on one or more of the top ideas identified in
the ideation campaign.

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Deploy an API for commercial banking customers that lets them build their own solutions. For
example, Fidor lets its commercial banking customers build their own solutions via an API layer
(fidorOS) that sits on top of a standard core banking system.

Create and nurture a third-party developer community to tap into talent outside the bank. Begin
by enabling peer networking and providing educational opportunities. Over time, progress to
hackathons or an API platform that is continuously available.

Use external hackathons as a way to build relationships with promising talent and make
employment offers as appropriate. Several large banks we know of have done this successfully.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.
"Reference Model for Open Banking APIs, Apps and App Stores"
"API Deployment Models that Accelerate Digital Banking"
"Digital Banking and the Role of APIs, Apps and App Stores"
"Hype Cycle for Open Banking APIs, Apps and App Stores, 2014"

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