OPEN APIs FOR DIGITAL FINANCE

An application programming interface (API) allows one software program to “talk” with another. APIs enable a wide range of innovative products and services that millions of people use every day. For instance, APIs are what make it possible for ride-hailing apps to leverage other companies’ mapping and payments systems. Sometimes companies create an API for a single or small number of partners.

When a financial services provider “opens” its APIs, it makes them widely available for other companies to consume. For example, a digital payments provider could open APIs to enable a whole range of e-commerce companies to plug seamlessly into its payments system. If done right, open APIs generate revenue for the provider and accelerate innovation in the marketplace.

When digital financial services providers enable third parties to leverage their data and infrastructure via open APIs, it improves the economics of a range of business models and stimulates innovation in the digital finance ecosystem. This means greater choice for low-income customers through increased competition and new types of services. As former head of M-PESA Ron Webb said, “When APIs were difficult and there was a closed community of very few organizations making use of APIs with our organization, people had few choices. They could get loans only from two companies. With an open API platform, you can open that up in a marketplace to multiple lenders and customers then get a choice to go for the best deal that suits them.”

In the words of Cedric N’Guessan, group head of mobile financial services strategy and products at MTN: “Keep it simple.” You do not need a completely worked out API strategy at the outset. Start small, learn and iterate. Here are five actions that you can take early in your open API journey:

1. Get management’s buy-in. Executives and managers should understand the potential of open APIs for your business.
    
2. Appoint an API team. Your team should include a product manager and business, IT, and risk management leads.
    
3. Learn from developers. Talk to third-party businesses and developers to understand which types of APIs would be most valuable for them.
    
4. Build an inventory. Start with low-risk APIs, test them with a few partners, and iterate.
    
5. Address technology challenges. Complete a technology gap analysis to determine the minimum requirements to open low-risk APIs to external third parties.

A pricing strategy should aim to do the following:

1. Help you achieve specific business objectives, such as growing revenue, reaching more customers, or increasing integrations
    
2. Generate business value for the third parties using your APIs, whether standalone coders building new apps or enterprises looking to drive efficiency
    
3. Align with (or modify) market expectations and norms for API pricing

Keep in mind that API pricing is more an art than a science. Make some assumptions and set a price, knowing that the price will likely change as you learn more and as the market develops.

Opening APIs is not just a technology project. It involves broader changes to your organization spanning your people, processes and ways of working. That said, the business leader responsible for a financial services provider’s API strategy does need to engage on key technology decisions. Lack of integration between business and technology strategy can lead to costly mistakes. Three design principles for an open API product should help to guide these decisions:

1. Enable a self-service mindset. Your technology should make it easy for third parties to start using your APIs with as little support from your business as possible.
    
2. Protect your reputation with third parties and end-customers. The technology must help address a range of risks, including those related to data privacy.
    
3. Deliver an awesome third-party experience. Your success is tied to that of your partners. Make sure they like using your APIs so much that they advocate for your APIs.

Common risks include unauthorized transactions on customer accounts and misuse or exposure of customer data. Rather than miss out on the opportunities presented by open APIs, digital financial services providers can mitigate these and other risks through a combination of technical, operational, and contractual measures.

Fair, standardized legal contracts can be used with third parties to identify risks, clarify responsibilities, and specify who is liable in different circumstances (as well as to speed up the onboarding process). This is a balancing act. Strict, one-sided contracts may assure providers, but too many restrictions may deter potential partners.

First, be clear about your business objectives and which third-party segments you are targeting with your open APIs. Second, make sure you understand the needs of those segments at each stage of their engagement with your APIs, from awareness of your offering to onboarding to usage. Third, develop resources and conduct activities to meet their different needs. For example, self-service and affordability tend to be priorities for independent coders and early-stage innovators; a well-designed developer portal would be critical for them. Large enterprises, on the other hand, may want a tailored value proposition and integration assistance. Lastly, be sure to track the flow of third parties that move from showing interest to actively using your APIs and get feedback so that you can iterate and improve your API offerings.