Oren Michels | Co-Founder & GM
July 31, 2012

Old Money, New Tools


I’ve been blogging recently about how APIs are the New Currency. There are many factors in this equation, but one industry literally illustrates the changes I’m describing: financial services.

Companies in this arena have been all over the map in adapting to change. From putting ATMs in non-banking locations to deploying mobile applications, it’s often been a story of resistance followed by embrace. That’s because every change has required relinquishing control, broadening boundaries and taking risks, and for many that’s a tall order.

During the rise of the Internet, we saw some financial services institutions jumping on the bandwagon early, while others didn’t do much until they saw their market share being devoured by smaller, newer and nimbler competitors. In some ways, we’re seeing a replay now.

There’s a new report based on a snapshot survey of 137 banking executives from over 100 financial institutions. They’re mostly optimistic about the SMB market, wary of more regulation and keenly aware of the growth of social media and mobile banking. But there’s also a more interesting twist: A whopping 60% of the respondents, all of them banking professionals, are monitoring competition from ‘non-banking’ companies. They should be.

The truth is that companies like eBay, PayPal and Facebook, among others, have built the kind of trust that financial services behemoths took decades to acquire. But in the process, these companies did not transform themselves into financial services providers. They continued to do what they do, but applied those skills to meet different needs. That’s the trick—moving into the future, financial services companies need to think and act like technology companies. And yes, that’s a really tall order.

With more than 1 trillion connected devices at large in the world, we’re very much in the post-website era. It’s not nearly enough to digitize credit card services and put them on the phone. Banking doesn’t only entail multi-location networks and industry-wide ‘co-opetition’ but a full-on embrace of social media and mobile access.

Right around this time three years ago, PayPal released the PayPal X API, becoming the first global payment service open to third-party developers. It was a startup called Payvment that immediately saw the opportunity and marketed a free virtual cart that let online shoppers buy products at different sites, including Facebook, and pay for everything during a single checkout. This is how the connection between APIs and commerce came to be, and now all kinds of companies offer outside developers secure plug-and-play payment solutions that can be embedded in whatever they’re creating.

But here’s the key point: Individual transactions don’t need to be part of the ROI. APIs offer unprecedented opportunities to expand relationships with customers because they make it easy to deploy content and services in new and relevant contexts. These can include a bank’s own branded apps, integrations with strategic partners, and co-branded apps built by external developers. But more importantly, launching an API can also mean opening new channels of digital distribution.

When financial services companies do take innovate, the market has been shown to embrace the progress. Within two years of offering its Deposit@Mobile smartphone app, insurance conglomerate USAA had already processed nearly $4 billion in mobile banking transactions. Perhaps sensing the competitive advantage, the company soon moved to expand its services with a host of new digital banking products. To no one’s surprise, many other institutions also teamed with technology providers to offer Remote Deposit Capture (RDC) services.

One of my favorite advances, which the industry as a whole is closely watching, is the partnership between American Express and Foursquare. Once Amex members have synced their cards with Foursquare, they can easily take advantage of location-based offers from every participating merchant (a big list already, and it’s growing).

It’s the perfect arrangement for both companies: financial services veteran Amex gets to make a splash with a hip young brand even as it tests the viability of mobile applications, while Foursquare attaches itself to a perennial powerhouse. Consumers, meanwhile, get redeemable points for doing what would do anyway. These are exactly the kind of applications that the market wants, and an open API strategy enables.

I’m confident that this is not even the tip of the iceberg. Moving forward, we’re going to see a range of innovative, API-based partnerships between old-line institutions and emerging companies that offer consumers and businesses alike new applications to do old and new things. Just watch.