Why it’s important: While there are many reports of the expected benefits of open banking, finding quantifiable evidence of the value being generated from open banking is more difficult. Our value model categorises the type of value and our tool documents quantifiable examples of value generation.
Last updated: 22 December, 2020
Our model, designed at Platformable under the guidance of our Open Banking Lead Analyst Phuong Pham, draws significantly on the work of API industry leader María García Luengo as well as an extensive literature review on how platform business models (and bank platforms, in particular) generate value.
Why banks need to prove the value of APIs
In many global jurisdictions, banks are required to open APIs to third party providers so that they can build new products to meet consumer needs. For the past several years, they have been doing so fairly reluctantly. Some leadership banks have seen the opportunity of creating open and partner-based ecosystems in which they can share APIs as digital capabilities that third party providers can use to build new products and services for their own customers, as well as use to bring in new customer segments. They have created a range of APIs beyond what is required to comply with regulations and they are now starting to create business value from this platform approach.
With COVID-19 forcing everyone to rely on mobile and online forms of transaction, and increasing customer demand for more nuanced, personalised financial services, banks need to offer APIs more widely if they want to keep up. In our annual study, Open Banking APIs State of the Market 2020 Report (sponsored by Axway), we drew on Simon Torrance’s and McKinsey’s research to note that banks that have completed digitisation projects are not using them to increase revenue or generate new digital business models that share value with partners.
This reluctance by banks to create platforms and foster open ecosystems is partly due to banking enterprise culture which on one hand needs to be protective of the customer because they have a fiduciary responsibility to ensure their customer’s financial assets are managed securely and safely, but on the other hand, cultivates an approach in which they want to own the entirety of the customer relationship. (Which brings us back to regulation: it was often to reset that imbalance between keeping consumer wealth safe and encouraging more consumer choice and innovation that led to the introduction of open banking and open finance regulations.
Firms that develop a strong sense of market shifts and an ability to harness their value network towards these shifts will be best positioned to win. The importance of harnessing your value network makes agility and digitization ever-more important priorities for executives. More importantly, firms that compete through ecosystems will be best positioned to rearchitect their value network. Ecosystems are fluid and dynamic, and the most successful orchestrators govern them through digital platforms. Businesses that orchestrate ecosystems can leverage external assets and benefit from demand-side economies of scale. They may also selectively capture supply-side control points by owning important assets of their own. Sangeet Paul Choudary
Banks are now shifting their mindset, and this year has seen the emergence of four main approaches to creating partnerships with external providers. Banks may offer open APIs, partner and premium APIs, invest in fintech via incubators and acquisitions, or build out a complete suite of banking-as-a-service APIs so that enterprises can offer branded banking to the enterprise’s own customer base.
But banks can still be reluctant. It can also be confusing to know where to start. Banks feel that many of the examples we often use to demonstrate the success of APIs refers to “others”. Banks have a monolithic legacy infrastructure stack so examples like Stripe’s rapid growth aren’t a good fit. Banks aren’t Google Maps.
Meanwhile, reading the open banking media, there are a lot of promises without a lot of data presented. This is partly because of the nascency of open banking, but it is also because the data isn’t widely reported.
Launching the Open Banking Value Generator Tool
At Platformable, we draw on evidence-based policy and research models, data science, platform business design, and our understanding of how value is transmitted in open ecosystems to create our framework for how value flows in open banking and open finance ecosystems. Our 5 wins model is outlined in our deep dive, and in 2021, we will have more detailed content and materials to document how value flows.
Our 5 wins model discusses how much of the evidence of the value being generated by open banking APIs is locked in unstructured data sources. It can come from:
- Data points described by banking leaders in presentations at conferences (video content)
- Bank case studies released by API tools providers showing the impact of their technologies (white papers, PDF content)
- Interviews with platform and bank leaders who mention key data points as anecdotes (blog and news content)
- Press releases and news articles (media content).
At Platformable, we have created a mechanism to turn this unstructured data into a structured data source. We will be releasing this as an API in the first quarter of 2021, but in the meantime, readers can access the dataset via our open banking value generator tool (hopefully, we will come up with a catchy name by 2021 as well).
- Publish a more detailed, referenced paper on how we developed our model with detailed definitions for each value category (coming first week of January 2021)
- Continue adding evidence-based examples of API value from unstructured data sources (last Friday of every month)
- Extend to cover finance service providers so that we are looking at the broader open finance sector (February 2021)
- Test whether this value model is sufficient for all API producers as a way to categorise the different types of value being generated via APIs (February 2021)
- Create similar models (aligned with the 5 wins data model) to track what value API consumers receive from APIs and what value end users and the wider society benefit from products and services that use the consumed APIs (February 2021)
- Enable a crowd-sourcing functionality so you can share evidence-based examples of quantifiable value generated from the use of APIs (February 2021)
- Allow you to select the evidence stories that resonate with you and create a downloadable slide deck of key evidence examples you can use in your advocacy efforts (April 2021)
Let us know what you think and which features are most important for you. You cane mail us, or set up a meeting with us on our Calendly.
We will update the value generator every month with new evidence based examples, so subscribe to our Quarterly Trends report to keep up with the newly added evidence cases each month or visit our tool regularly.
Open Finance Regulator
How regulators can use these toolsOpen banking regulators need to be designing metrics systems that can calculate the value being generated by the open banking ecosystem they oversee. The value model is useful for categorising the types of values that banks and open finance providers can generate for themselves by opening APIs. The tool shows quantifiable data of banks that have benefited from opening APIs and can be used to encourage banks in your jurisdiction to open APIs in accordance with the full spirit of the regulatory intent.
How fintech associations can use these toolsThis value model and tool help fintech associations advocate to banks that it is in their interest to open APIs as they get benefits when they partner with external stakeholders. For fintech members who are considering opening APIs themselves, the model and tool help fintech associations describe the value that can be cultivated by operating as a platform provider in an open finance ecosystem.
API Providers and Consultants
How API providers and consultants can use these toolsAPI providers and those supporting banks to create APIs can use the evidence based examples in the tool to show how value is being generated and how banks can get there faster by using your products or services. You can also submit your evidence-based case studies to us and use our tool as a communication channel to share the successes of your clients.