How APIs are Driving Valuable Opportunities in Payments and Financial Services

Kevin Fox, EVP at Novopayment, breaks down why the payments and financial services sectors offer notable opportunities for more advanced API practices, especially in the Americas.

APIs in finance

It seems that APIs (Application Programming Interfaces) are becoming all the rage in certain circles these days. What used to be a relatively obscure programming term is regularly discussed today in the context of business models, strategy, and revenues.

While it’s true that there is nothing new about APIs or monetizing them, what is becoming increasingly apparent is that their presence and relevance in an ever-expanding field of industries compels us to understand them better – along with the evolving opportunities they present.

Two markets of particular interest, and relative newcomers to more advanced API practices, are payments and corporate financial services. These historically closed sectors (from an information technology point of view) offer notable opportunities, especially in the Americas where disparate infrastructures and cash-heavy business processes present ripe opportunities for the kinds of ecosystems and customer experiences that APIs enable so well.

For example, think of all the CFOs and treasury executives across our markets (and their regional HQs) relishing the thought of unsaddling themselves and their workforces of slow, opaque and labor-intensive transactions and embracing real-time payments, digital mass payouts and cash-in services.

Learning from the Giants

But, where did all this come from and where is it going? Digital natives and online businesses like Amazon, who launched their standard-setting web services platform for developers in 2002, and Apple with its App Store (2008), helped establish best practices for the kind of ecosystems that, in the latter’s case, has generated a jaw-dropping US$70 billion-plus in revenues for developers worldwide, since its launch.

Yes, it took a lot to get there, but the point is that commercializing and monetizing APIs is, and will always be, about companies working together to create more value than they could otherwise achieve independently.

The trick for traditionally analog-native businesses like financial services, and for the would-be ecosystem players that will propel the industry forward, is figuring out where new value can be created by delivering improved productivity and experiences. By joining forces with others that can help integrate and orchestrate existing data and services to implement new processes, these businesses can create this new value in a streamlined manner.

APIs as a Primary Revenue Source

Some people are surprised to learn that OTA Expedia generates about 90% of its US$2 billion in revenue from APIs. Skeptics will point out that it’s a consumer brand and that B2B companies have very different obstacles in doing business with one another. But, what about a company like Salesforce? Nearly 50% of the SaaS pioneer’s US$3 billion in revenues come through APIs, and most of its traffic as well.

The payments space is looking to exploit these new models, and particularly in the B2B cross border space, companies around the world, from China to Colombia, are making investments to remove the notorious friction and lag times that have come to characterize these and other business transactions – especially in emerging markets.

You’re too late in the game, you say? If recent studies and trends in the broader market are any indication, there is still a very, very big Greenfield to address — McKinsey & Company estimates that the number of public APIs (not to mention private ones) will triple over the next 12 months.

 Adopt an API-first Mindset

Of course, for IT services companies and BPOs in particular, creating new value by leveraging the assets they have today is a multi-faceted process.

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It requires a multi-disciplinary approach involving people with knowledge and command of the data and services deep within your systems, as well as those with an integral understanding of the inconveniences and pains that they remedy for others, and at what a price. It also involves creating developer-friendly tools like API portals where others can consume, satisfy or add value and further monetize their own assets.

In these endeavors, developers are key, and creating and launching a developer portal, while not a small feat, is easier today than ever. Experience teaches us that the keys to success involve picking the right APIs, delivering a great experience, creating and energizing a developer ecosystem, and simplifying how they make money.

Successful, experienced companies will tell you that monetizing APIs is about much more than charging for calls (per event). You need to set a clear strategy and a business model (e.g. unit-based, tiered, pay as you go, transaction fees, revenue sharing, etc.). Focus on the quality of your APIs, measure their performance often and promote an API-first mindset inside and outside of your organization, and get relevant executives actively engaged and supporting their use as something important to the business.

Note, there is little benefit to waiting. In fact, money flows have already started to shift in ways that may not yet be perceptible in particular industries and geographies. McKinsey’s own analysis states that as much as a US$1 trillion in economic profit could be ‘up for grabs’ through the redistribution of revenues across sectors due to APIs.

Love Thy Developer

In our own company, we’re placing bets on B2B payments across the Americas and in sectors such as travel, eCommerce, and gig / shared economy companies. We’ve also fostered a new appreciation for developers, seeing them as key business partners and important influencers to be actively welcomed and recruited, and we encourage others to start thinking the same way.

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