Avoiding Common Pitfalls Along the Journey to Open APIs

In developing markets, there is no shortage of innovative start-ups and app developers that are eager to build digital products for unbanked populations. However, these solutions are often not possible unless developers can seamlessly leverage the data and payments infrastructure of their countries’ large payments providers. Granting access to these “digital rails” through open application programming interfaces (APIs) -- which allow third parties to connect to an enterprise’s systems -- brings obvious benefits to developers and customers. As a growing number of examples show, harnessing third-party innovations can also increase revenues for providers. But opening APIs is challenging. It takes time and strategic thinking to get right.

The API journey of e-commerce platform MercadoLibre is a good example of what open APIs — if done strategically — can accomplish for providers, developers and customers. MercadoLibre has provided APIs to third parties who offer complementary services (such as accounting, delivery tracking, analytics and marketing) to vendors across 19 countries. In Argentina, for example, this has allowed Moon Money Online to offer loans to small businesses that have difficulty accessing credit from large financiers.

After obtaining consent, Moon Money uses a loan applicant’s MercadoLibre transaction data to calculate a credit score. In this way, Moon Money avoids relying on traditional bank sources that might not capture the applicant’s financial viability. For Moon Money, e-commerce vendors and MercadoLibre, this is a win-win-win. Moon Money reaches new lending customers they had not previously been able to support. Vendors get access to credit to grow their businesses. And as the vendors start selling more products, MercadoLibre receives higher sales commissions and sees an increase in buyers visiting their platform.

This is exactly the type of API approach that other established digital financial service (DFS) providers should consider pursuing, and some are already moving in that direction. But as early cases have shown, when traditional enterprises get started with open APIs, they often do so on an ad hoc basis and end up spinning in circles, rebuilding similar APIs over and over. Internally, this creates confusion and inefficiencies. Externally, companies that approach APIs with a “build it and they will come” attitude can become disappointed when developers don’t start knocking down their doors to integrate with them.

For all these reasons, having a well-conceived APIs business strategy in place is key. And digital financial services providers can avoid common pitfalls on the way to developing a strategy by following an API maturity model. The model below is based on best practices that have emerged in various industries and countries.