It is well understood that banks cannot do everything in-house. The media-hyped payments revolution is forcing banks to look more closely at their IT sourcing strategies in an effort to keep up with the rapid pace of technological change. This is the case even in areas that may have once been considered off limits.
It may seem counter-intuitive, given the conservative nature of the industry, but established banks that want to be successful in the future will have to consider opening up their transactional data to third-party developers via application programming interfaces (APIs). It sounds risky, but it should be seen by sourcing teams as an opportunity rather than something to be feared.
In short, an API is a tool, or a library of code, which allows a developer to write software that interfaces with other software. It defines how two pieces of software interact. Take mobile banking, for instance; the ability to locate your bank’s nearest branch or ATM makes use of geo-location APIs from the likes of Google.
The proliferation of online services and apps has made this possible because of the willingness of industries and organisations to adopt open standards and APIs. Customers are also beginning to demand that the wider banking proposition be digitised in a similar way.
It is a growing trend. Gartner, for instance, predicts that by 2016 25% of banks will operate proprietary app stores as a way of making visible the plethora of services available, reflecting at least anticipated demand for digital banking services beyond checking balances and making transfers.
The ability to offer something innovative, which should already be central to assessments of IT supplier capabilities, already exists in the marketplace. Be it spending-based rewards, loyalty programmes or pre-staging of card transactions and transfers using mobile devices, small and innovative suppliers are at the forefront of contemporary, digital financial services solutions.
Internal IT capabilities are one thing, but building these from the ground up is very time-consuming, and the aggressive nature of the new breed of competition means time is not on the side of the traditional banking organisation.
Open development environments, which allow external developers access to a bank’s IT platforms and data, offer a viable means for IT buyers to more easily integrate the wealth of customer data on which their organisations currently sit, with innovative third-party services.
BBVA Compass and start-up Dwolla’s partnership, initiated in 2014, is based on just such an idea. BBVA is among those leading the charge by opening its technology platform up to third parties, hoping to combine in-house resources with external expertise. Programmes such as the Open Bank Project, initiated in Germany, which has already attracted the likes of Deutsche Postbank and Berliner Sparkasse, also suggest the tide is beginning to turn.
The growing need to outsource comes from the requirement to implement competitive capabilities quickly and efficiently, but it is the way this is done which will determine the function’s success in such arrangements. APIs though offer an attractive inroad for potential innovation partners with the skills and know-how anchored for engagement in the so-called digital age.
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This article is a piece of independent writing by a member of Procurement Leaders’ content team.