Banks flex digital muscles New open API approach keeps incumbents competitive amid digital disruption by linking them to a broader financial ecosystem.

Banks flex digital muscles  New open API approach keeps incumbents competitive amid digital disruption by linking them to a broader financial ecosystem.

Driven by greater digital adoption across Southeast Asia, consumer habits have changed dramatically over the past five years, prompting businesses to adapt accordingly to continue thriving.

Banks and other financial services are no exception as several new challenges have emerged to force a rethink of how they do business. New classes of customers in the age of instant online gratification are easily dissatisfied and disillusioned, and have ever-growing expectations of engagement and experience. Meanwhile, a new breed of competitor is emerging for banking customers.

Traditional banks, often burdened with inflexible and costly legacy systems, struggle to redefine operating and business models to meet what could become existential challenges if left unaddressed.

“Ten years ago, customers mostly walked into the branch and asked for products or services. But in the last five years, they have started to change from using the branch channel to using mobile phone or digital channels instead,” said Sayam Prasitsirigul, chief information and digital officer of Krungsri (Bank of Ayudhya).

“Customers nowadays, when they wake up, they don’t think about coming to the bank anymore. They just think of how to spend their daily lives by using digital services like shopping online,” he said in an interview with Asia Focus.

Banks flex digital muscles  New open API approach keeps incumbents competitive amid digital disruption by linking them to a broader financial ecosystem.

“We know we have to change the way we approach the customers. Instead of waiting for customers to walk into the branch, now it’s time for the bank to extend products and services to the customers. It’s not ‘the bank’ anymore. It’s banking services that we have to deliver to the daily life of the customer.”

The coronavirus pandemic has highlighted the need for financial institutions to accelerate their digital transformations. This requires changes to business models for both front-facing and back-office operations.

Born-in-the-cloud startups and retailers with lower marginal costs and greater agility are now competing in payments and core banking services. And a new generation of financial technology companies are cherry-picking the most attractive parts of the financial services value chain — high-volume activities like small business and consumer lending, threatening to reduce banking incumbents to settlement agents of last resort.

“Banks have a lot of competition, not only from other banks but now startups and other newcomers like telecommunication companies who are starting to get into banking services. That adds pressure on banks to bring products and services up to speed,” noted Mr Sayam.

“Time to market is very important, and it has to be at the lowest cost possible as well,” he acknowledged. “Cost consciousness is one of the challenges we are facing. These are the three elements coming into play in the industry.”

Banks flex digital muscles  New open API approach keeps incumbents competitive amid digital disruption by linking them to a broader financial ecosystem.

“In the past, when we had to create an interface for customers, it usually took two to three months including testing. Now it takes two to three days,” says Sayam Prasitsirigul, chief information and digital officer of Krungsri. Photos: PATHOMPONG

That’s why Krungsri started to use an open application programming interface (API) by teaming up with IBM Consulting to develop an ecosystem platform that brings digital banking services to where the customers are.

In the past, APIs were only used to connect internal systems. The concept has changed to enable banks to connect with the platforms used by the customers, said Sawat Asdaron, managing partner and country manager of IBM Consulting.

The Krungsri platform now connects the bank’s ecosystem partners to digital services such as wallet top-ups, fund transfers, mobile payments, rewards and lending. Co-created by IBM Consulting, it enables Krungsri’s ecosystem of e-commerce, travel, lifestyle, insurance, hospitality and other providers to seamlessly provide enhanced personalised financial services to their customers through a secure, modern and open architecture.

Today, 250 digital financial services APIs are available on the platform. Hundreds of local and Asean brands such as Ngern Tid Lor (NTL) have also joined the Krungsri Open API Platform to rapidly deliver new products and services to their customers.

The platform has allowed Krungsri to increase its online transactions by 120%, with revenue from fees increasing by 24 times. It has also allowed Krungsri to rapidly build its digital market share in Thailand.

“The key word is interface,” said Mr Sayam. “In the past, when we had to create an interface for customers, it usually took two to three months including testing. Now it takes two to three days.

“It caters to small operators as well. The bank can build an API portal for startups or any SMEs, to which they can plug in and use API services from the bank. That is very quick and easy. It answers the time-to-market requirement.”

Banks flex digital muscles  New open API approach keeps incumbents competitive amid digital disruption by linking them to a broader financial ecosystem.

“Krungsri is catching up very fast. From 2019, when implementation started and the idea got out, the bank has caught up in terms of market share very quickly,” says Sawat Asdaron, managing partner and country manager of IBM Consulting. PATHOMPONG

The second benefit is that transactions are processed in real time. In the past, if customers wanted to transfer money, they had to wait at least one day for the recipient to get the money. Now with the API, funds change hands in seconds.

The Krungsri platform now provides cross-border remittance services to banks in the MUFG group (the Japanese major shareholder of Krungsri) in Laos, Cambodia and Indonesia. By connecting to NIUM, a global payments infrastructure platform, the service is also available in 13 countries worldwide, such as the US, the UK, Australia and several countries in Europe.

“Krungsri is catching up very fast. From 2019, when implementation started and the idea got out, the bank has caught up in terms of market share very quickly — within one year,” said IBM’s Mr Sawat. The bank currently has about one-quarter of the market, close behind the 27% share of the top player, which he declined to name.

Mr Sayam said Krungsri is looking to explore further business opportunities with partners in other countries. “Given the nature of lower cost, easy interface and real-time transactions, we are expecting the API to help drive cross-border transactions with other countries as well,” he said.

According to the DBS 2020 Digital Treasurer Survey, 48% of businesses in Asia and the Pacific are using APIs in their current operations as they step up their efforts to respond to severe disruption in the industry.

A McKinsey global survey, The State of APIs in Global Transaction Banking (GTB), found that, on average, just over half of a bank’s B2B (business-to-business) APIs are currently used to connect its internal systems, such as front-end servers to back-office servers. But in the next three years, this ratio will shift with most new APIs connecting banks to systems outside the organisation.

According to McKinsey, banks with the highest API maturity level have succeeded by attracting and retaining the right talent, while investing in strong business–IT collaboration, including joint funding for the development of API-based products and services.

They have also helped future-proof their technology by providing access to software development kits that enable other developers to build on top of a bank’s products and services. As a result, the banks in the top third of API maturity “have been able to achieve a disproportionate impact regarding the effectiveness, breadth and revenue-generation potential of new products and services”, it said.

More than 90% of the respondents to the McKinsey survey said they use or plan to use APIs to generate additional revenue among existing customers, with three-quarters saying they are looking for revenue streams from new customers.

Three-quarters of respondents list the ability to integrate with third-party capabilities as important, and just over half want to use APIs to enhance operational efficiency, such as by improving and streamlining integration with customers’ enterprise resource planning (ERP) systems.

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