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G00257833

API Deployment Models That Accelerate Digital

Banking
Published: 4 March 2014

Analyst(s): Kristin R. Moyer

Global banking net profits are under a tremendous amount of pressure.

However, prioritizing public Web API deployment based on the highest net
profit impact possible will not always be the right choice for CIOs and
CMOs.

Key Findings
■ Three deployment models for public Web APIs include: (1) increase mobility; (2) expand product
and service accessibility; and (3) create new business models.
■ Despite pressure on net profits, using public Web APIs to enable new methods of customer
interaction and service delivery will be even more urgent for some CIOs and CMOs.

Recommendations
For CIOs at banks with return on equity above 14%:

■ Identify the top three strategic initiatives of the enterprise, and evaluate the use of APIs to
improve and accelerate their effectiveness.
■ Evaluate ways to improve customer and partner experience through the use of APIs.

For CIOs at banks with return on equity at or below 14%:

■ Deploy a small number (no more than one to three) of public Web APIs that expand product and
service accessibility in 2014.
■ Launch an open development platform with a limited number of APIs to selected partners in
2015.

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Strategic Planning Assumption

By 2015, more than 50% of public Web API deployments will be to improve digital customer
experience as an even more important priority than net profits.

Analysis
Using APIs to Shift Control to Users
Digitalization is ushering in a seismic change in the way products are consumed, services are
delivered, and revenue and costs are allocated (see "Gartner's Digital Banking Taxonomy").
Customer experience is at the center of this change. The balance of power has shifted
fundamentally in favor of the user, but line-of-business leaders have yet to purposefully give more
control to users in any kind of meaningful way. This is vital to accomplish, because users have
become accustomed to having control in other areas of their digital life, in some cases (such as
media, travel and e-commerce) for more than a decade.

New digital entrants Puddle, Billtrust, Crowdtilt, LevelUp, Square and others have focused on
shifting control to users much more aggressively than banks. Public Web APIs have been key to
their success, both in terms of transforming customer experience (by giving users control) and
achieving rapid growth. For example, WePay's monthly crowdfunding payment processing is
around $1.5 million and has grown by 35% per month since it got its first crowdfunding API partner
1
in October 2011. Braintree, acquired by eBay for $800 million in cash, is a merchant acquiring
2
payment platform based on APIs and processes more than $10 billion per year.

Just as they have for new digital entrants, public Web APIs provide banking CIOs, chief marketing
officers (CMOs) and line-of-business leaders with an opportunity to shift control to users and
improve net profits, as well. Public Web APIs can be deployed in three main ways, each of which
has a different impact on customer experience and net profits (see Table 1).

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Table 1. Net Profit and Customer Experience Impacts of Public Web APIs

Deployment Model Net Profit Customer Use to …

Impact Experience Impact

Enable mobility and ++ ++++ Deliver more granular, needs-based

innovation banking services that revolve
around the user's digital life

Increase product and +++ +++ Expand addressable market share

service accessibility while also delivering services more
specific to customer need, location
and context

Create new business ++++ ++ Expand addressable market share

models with partners and create new
business models

+ = Lower impact
++++ = Higher impact

Source: Gartner (March 2014)

While the pressure to improve net profits is high (see "Predicts 2014: Banks and Investment
Services Firms Must Adapt to a Radically Changing Business Environment"), some CIOs and CMOs
are putting an even higher priority on the transformation of customer experience by using APIs to
enable mobility and innovation (see "Credit Agricole Pursues Digitalization With Open Banking").

Three Deployment Models for Public Web APIs

Enable Mobility and Innovation

Public Web APIs can be used to enable customers, partners, third-party developers, employees and
others to build apps (see Table 2). This allows those that are closest to customers (and
consequently have a clearer understanding of customer needs and requirements) to develop
appropriate products and services that can be integrated into physical and digital customer
processes (see "Gartner's Digital Banking Taxonomy"). As the number of banking apps built
through public Web APIs grows, a customer-facing bank app store can enable app discovery. It can
also enable users to share ideas and co-create with banks and developers.

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Table 2. Enable Mobility and Innovation

Case Study Example Net Profit Impact Customer Experience Use When …
Impact

Credit Agricole's CAStore ++ = Moderate impact. ++++ = High impact. The overriding
initiative includes an API Depending on the The objective of this business
platform for third-party monetization strategy a bank deployment model is to objective is to
developers to build apps, and uses, app development costs enable very specific deliver more
an app store for users to find can be reduced. For customer needs, a granular,
these apps and share ideas example, one bank recently cornerstone of digital needs-based
for new apps (see "Credit brought an app to market in banking. A few app banking
Agricole Pursues two months for examples, we have services and
Digitalization With Open approximately $15,000 rather seen include health delivery that
Banking"). than nine months and $4.5 budget, goal-based revolve around
BBVA recently provided a 4
million. Another bank used saving, red-yellow- the user's
public Web API that included an API to bring a new green account status, digital life.
debit card payment data by product to market in two expense report tracking
demographic origin, gender, weeks for approximately and geotagging of
age, timing (over weeks and $3,000 rather than credit card
months) and spending implementing a new transactions.
category (travel, food, hotels, packaged application in an
real estate, and so forth) as estimated six months and
3
part of the Innova Challenge. $100,000.
5

Source: Gartner (March 2014)

Increase Product and Service Accessibility

Public Web APIs can be used to make product and pricing available for comparison and
consumption through social media sites, online stores and other digital media (see Table 3). For
example, an auto lending line of business could provide a financing API that enables price
comparison for users who are house shopping or car shopping. Public Web APIs can also be used
to let partners, customers and third parties embed banking services into their products. For
example, a payment line of business could provide an API to mobile commerce providers that lets
them customize one-click payments, with the bank processing the transaction.

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Table 3. Increase Product and Service Accessibility

Case Study Example Net Profit Impact Customer Experience Impact Use When …

Capital One's deal API +++ = Moderate to +++ = Moderate to high The overriding
enables merchant high impact. impact. business objective
partners to deliver the Using APIs to increase The primary objective of using is to expand
right deals to the right product and service APIs to increase product and addressable market
person at the right accessibility expands service accessibility is to share while also
time. Its rewards API addressable market increase revenue efficiently. delivering more
enables e-commerce share and makes bank However, providers that are specifically to
storefronts to build and services more closer to the customer are in a customer need,
enable a "pay with accessible in specific better position to meet specific location and
points" option for locations and needs, and this will result in context.
users. contexts. improving customer experience
for banks — even if indirectly
through a partner.

Source: Gartner (March 2014)

Create New Business Models

Megadigital firms, including Facebook, Apple, Google and Amazon, have platforms that let partners
build their own solutions; these platforms have been a large part of their market success. Using API
platforms can enable banking CIOs and CMOs to expand addressable market share and create new
business models in a similar manner (see Table 4). For example, an API platform could enable
friend-to-friend (F2F) lending by exposing the relevant APIs to a platform like Facebook or Twitter.
Puddle is already enabling F2F lending in much the same way on Facebook, but it is not a financial
institution and could struggle to achieve mainstream adoption because of this and regulatory
issues. In addition, banking CIOs and CMOs could use API platforms to extend even existing F2F
models like Puddle by providing an API that enables friend credit checks or an API for a bank-
provided service in which a small percentage fee would reimburse losses when a friend defaults on
a loan. This same model could be applied with tandas (informal savings groups) and the unbanked
through digital barter exchanges or digital complementary currencies (see "Hype Cycle for the
Future of Money, 2013").

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Table 4. Create New Business Models

Case Study Example Net Profit Impact Customer Experience Use When
Impact

E*Trade has essentially ++++ = High impact. ++ = Moderate impact. The overriding
provided "investment Providing selected The primary objective of business
services as a platform" aspects of banking creating new business objective is to
through its E*Trade (based on bank models is to enable partners expand
Developer Platform. The differentiators and to build their own solutions addressable
E*Trade Developer strategy) expands or banks to create new market share or
Platform enables addressable market revenue services — not to create new
partners to create share and enables banks specifically improve business models.
investment applications to create new business customer experience.
that leverage its market models. Customer experience may be
data offerings, order- positively impacted but is not
routing capabilities and the primary objective.
other services.

Source: Gartner (March 2014)

Conclusions
With more than 50% of the top 100 banks (by market capitalization) at or below 14% return on
equity, CIOs will come under increasing pressure to deliver solutions that improve net profits. Public
Web APIs can improve net profits, but they can also enable new methods of interaction and service
delivery to transform the customer experience. For some CIOs, CMOs and line-of-business leaders,
especially those operating at or above 14% return on equity, this may be an even more important
priority.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

"Digital Banking and the Role of APIs, App Stores and Apps"

"Hype Cycle for Open Banking, 2013"

"Credit Agricole Pursues Digitalization With Open Banking"

"Gartner's Digital Banking Taxonomy"

"What Is Digital Banking?"

Evidence
1 E.
Blattberg, "WePay's API Pays Off, Handles 648% More Crowdfunding Volume Than Last Year,"
VentureBeat, 18 October 2013.

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2 K.Evans, "eBay Will Buy Mobile-Focused Payments Processor Braintree for $800 Million," Internet
Retailer, 26 September 2013.

3 BBVA Innovation

4 Source: Gartner client inquiry

5 Source: Gartner client inquiry

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