Banking on collaboration
The disruptive forces of technology and legislation are forcing banks to become open and collaborative, things which they historically found challenging.
A friend who owns a small business recently went through what I call a “connected and choreographed” experience to get a loan. iWoka, a digital lending company, simply asked him to log on to his PayPal and Xero (accounting software) accounts and connect his bank feeds. This enabled them to quickly establish his credit worthiness and offer a loan. After accepting the loan via email, the money was transferred to his account and Xero automatically reflected the loan in his company’s balance sheet. This all happened in under an hour. Contrast this with a traditional bank’s lengthy and often cumbersome process, which requires a detailed business case upfront that can take weeks to put together.
How was iWoka able to do it? Through so-called application programming interfaces, better known as APIs. Put simply, APIs allow developers to build systems that talk to each other. This results in a connected experience that enables customers to use a range of financial services in new and exciting ways. By building open platforms and embracing collaboration, fintech companies are “bundling up” to compete with banks on more fronts.
Open technology platforms that provide third parties with access to data are becoming common. This leads to increased collaboration between companies that build services on top of each other. Traditional banks, on the other hand, manage a plethora of products that often sit on different platforms that work independently, even within a single company. In other words, their products don’t “talk to each other”, resulting in a fragmented customer experience. Banks also deal with legacy technology tied to lengthy release cycles, which means new features often take months before seeing the light of day and many face the risk of being descoped completely. With so much to fix, banks are struggling to keep up.
And this is only half of the story. Forthcoming regulation (PSD2 and Open Banking) will force banks to open their walled garden for the first time in history, allowing third parties – including competitors – to access their data. This “connectedness” in financial services will soon be the norm whether traditional banks are ready for it or not. As soon as third parties can plug into banks’ data, they will be able to build better customer experiences on top, thereby further weakening the role of traditional banks in our everyday life.
A good parallel example of the power of connected experiences is Uber. The ubiquitous private cab company is powered by Google Maps and Braintree (payment processor) through APIs. Uber launched its own API in 2014, allowing third parties to “pass a destination address to the Uber app, display pickup times, provide fare estimates, access trip history and more”. By not only providing an API but also actively encouraging developers to adopt it, Uber is now able to offer much more than a taxi ride. Today Uber customers can order a cab from the Google Maps app, listen to their own music via Spotify and automatically sync up their receipts to Expensify.
Mobile-centric banks like Monzo (formerly Mondo) are built on the premise of connected collaboration. Already redefining current accounts, Monzo’s strategy is to become a fintech hub and deliver services that go beyond its core product by connecting with other companies. By partnering with companies like TransferWise or Lending Club, it could offer low interest loans and cheap international transfers within its app. This allows them to compete with banks on more fronts whilst providing a superior customer experience.
Connected collaboration changes the game completely. First of all, it allows companies, like Monzo or Uber, to maintain their original focus whilst plugging into others that also deliver outstanding experiences. Second, it means an increased presence, specifically in areas that are contextually relevant for the users (e.g. Uber and Google Maps). Greater presence translates into more opportunities for business. And finally, it allows them to monetise customers’ ecosystems in new and exciting ways; without the effort of designing, building, selling and managing a new product or service.
Banks that embrace open platforms and collaboration through APIs, can connect externally – to other companies – and internally by connecting their products and teams. Some of the bigger banks are already adopting this new connectivity in meaningful ways. BBVA’s API market provides clever products that vendors can integrate to their websites. LHV, Estonia’s largest domestic bank, connected with TransferWise to provide “transparent and easy-to-use international money transfer service”. Capital One now allows its customers to do voice banking via Amazon Echo. Customers can ask Echo’s virtual assistant, Alexa, to check their most recent transactions or pay a credit card bill.
The key challenge for big banks is moving away from a “build it and they will come” mindset into a collaborative model where banks connect parts of their ecosystem with the preferred services that customers are already using. This will require a significant cultural shift. For those that manage it, the potential rewards could be transformational.
By Daniel Gonzalez, strategist at SapientNitro