June 11, 2018
Compared to the U.K. and elsewhere, U.S. banking providers’ adoption and use of APIs has been advancing far more slowly. While some of the largest financial institutions are rolling out partnerships and developer kits, most FIs remain on the sidelines.
Unfortunately, this hesitation may result in: 1) institutions falling further behind more agile and well-heeled fintechs and institutions, and 2) a very real loss of revenue. According to Bain & Company, the total profit pool for US retail banking is likely to remain the same at roughly $70 billion to $80 billion annually through 2025—but that profit pie is to be sliced up very differently. Loans and deposit accounts are expected to generate smaller profits while customer advice and technology services (APIs) become bigger profit drivers at higher margins.
APIs can turn core banking data into an attractive product, one that developers, technology companies and other financial institutions are willing to pay to access. But to develop a revenue stream with APIs, banking providers must deliver real business value and develop products that meet a broader consumer demand. APIs built to satisfy an institution’s own needs, such as back-office efficiency, are likely to generate shrugs from the developer marketplace.
So, while institutions can’t afford to sit out the API revolution for much longer, they also can’t enter the market half-heartedly or with unreasonable expectations for what’s required to succeed.