An ‘open’ secret to beating the fintech threat?


Facing ruthless competition from customer-savvy fintechs, application programming interfaces (APIs) will prove “crucial” in banks’ fight to reassert their dominance over the wily disruptors, according to Capgemini’s 2017 World Retail Banking Report.

The Report surveyed thousands of retail banking customers across the globe, revealing the increasing importance of APIs in bridging the often contentious relationship between established banks and fintech disruptors, as well as creating mutually beneficial partnerships that can better serve their respective customer bases.

APIs are “fast becoming the standard-bearer in helping banks create stronger, more dynamic customer ties,” the Report said.

“APIs form the basis of partnerships with nimbler fintechs allowing banks to shed their traditional sluggish approach to technology and begin embracing creativity and customer-focused innovation.”

While the Report noted banks’ keen adoption of private APIs – considered by 88 per cent of banks to be “essential” for managing back office systems – the further deployment of partner APIs and open APIs will present significantly greater opportunities to enhance banks’ customer service operations.

“Over time, APIs are expected to evolve to include a greater focus on partner and open APIs, as banks respond to growing pressures to become more transparent and customer-focused,” the Report said.

The increasing prominence of fintechs was laid bare in the survey results, with nearly one-third of surveyed customers reportedly to have used non-traditional banking services; of these, more than half engage with three or more fintech providers.

Collaboration, rather than competition, is expected to become the new norm in relations between fintechs and established institutions, the report suggests, with 91.3 per cent of surveyed banks and 75.3 per cent of fintechs considering the partnership “inevitable”.

In order to sustain this collaboration, the report argues that APIs will provide a critical link between incumbents and disruptors where systems incongruities can serve as a barrier to an effective alliance.

“APIs will be a key enabler as the banking industry seeks ways to collaborate with tech-focused financial firms, helping bypass issues of technology incompatibility.”

“Through APIs, banks gain access to the agility and creativity of fintechs while sharing their resources, customer databases, and established expertise”

However, collaboration alone will cannot entirely mitigate the persistent threat posed by disruptors, the report argues. As such, it urged banks to leverage their built-in advantages, including their large customer bases, access to resources and high levels of consumer trust to retain their dominant position in the market.