Rebundling APIs to create tailored customer-centric banking products - From Open to Embedded Finance

While banks are busy figuring out how to best leverage Open Banking, we will look ahead to what’s next for banks and financial services. Current Open Banking and API initiatives focus on unbundling financial services, moving from a package deal of banking services to smaller, more autonomous, API-enabled offers. The logical next stage in the evolution of banking products will be a rebundling of these API products, however, in completely new ways than banks have done in the past and done by new market participants.

In the next stage, we will likely see financial services deeply embedded in a variety of non-financial products, resulting in more customer-centric, tailored, and relevant niche products offered by tech companies. Those tech companies will become the customers of tech-savvy banks, buying Banking-as-a-Service (BaaS) in the form of APIs from banks.

As this new dynamic plays out, it is important to distinguish between tech-savvy and traditional banks. Tech-savvy banks will enable embedded banking by offering BaaS to product companies as their customers, whereas traditional banks unable or unwilling to offer the same, will have to compete for end-users against the long tail of embedded banking offers. Today, those traditional banks mainly compete against other traditional banks just like them, but will increasingly face competition from product companies outside the financial services industry with different business models, technology stacks, and fewer regulatory constraints.

To participate in this new and fast-growing market, banks need to be as technologically savvy as their customers and offer their services as attractive APIs.

Despite being a deeply technical concept, APIs are revolutionizing the financial services industry. APIs make core banking functions such as accounts, transactions, balances, and payments programmatically available - within the organization and to third parties outside the organization. Since the APIs are available outside the organization, innovative apps of Fintechs can interact with the financial data of a bank’s customers, given he/she consents to share the data.