Chris Truce, Saxo Bank: open APIs will enable mid-tier banks to thrive

Chris Truce, Saxo Bank: open APIs will enable mid-tier banks to thrive

No longer are the mid-tier banks doomed to be extinct! The arrival of open application programming interfaces (APIs) will enable them not just to survive but to prosper, states Chris Truce, director of platform development at Saxo Bank.

For years, mid-tier banks have been told they’re potentially heading for extinction. The barbell effect dictates that the middle will be significantly challenged by an increasingly tough business environment, with only the very large and the very niche institutions being able to succeed. And indeed the outlook does look challenging, if one adds up the increased cost of regulatory compliance, the pressure on fees exerted by a low-interest rate environment and prolonged macro-economic uncertainties, the balance sheet constraints imposed by Basel III and increasing competition from innovative, nimble fintech firms.

But technology-led innovations are making possible new client-centric business models that will enable mid-tier banks to punch above their weight, while retaining the agility and focus to respond quickly to changes in demand. This marks a new era of open banking, where higher customer expectations can be fulfilled by mid-tier banks providing a widening and customisable array of capabilities and services accessed via APIs.

APIs will give mid-tier banks the opportunity not only to survive but to thrive.

Grasping this opportunity requires a radical change in banking models and mindsets. But at Saxo Bank, we believe that the combination of profound socio-economic shifts and economic pressures should encourage banks to take a leap of faith.

In short, recent digital technology innovation has changed customer expectations forever. People have grown used to the responsiveness, convenience and customisation they have experienced via apps downloaded from their smartphones to run key aspects of their daily lives. As is already evident in many consumer-focused industries, we’re making a transition from a service-based economy – in which firms including banks grow relationships and revenues by adding more services over time – to one in which the user experience (UX) is paramount.

To ensure the necessary degree of attention to – and investment in – the UX, banks need to re-order their priorities.

In the first instance, they must reassess their value proposition and their core competences, often based on a unique combination of factors, including customer base, core geography, product expertise, customer service levels etc. This identity or brand is critical to customer perceptions in a world of increasing digital disintermediation and must be understood, harnessed and leveraged as banks migrate their services to omnichannel platforms to reach customers via the device of their choosing.

But to nurture strong, loyal customer relationships that can drive digital revenue growth in the long term, banks need to concentrate a higher proportion of their resources on highly-personalised, highly-responsive delivery to the client – increasing satisfaction levels and interaction volumes – whilst taking an aggregator view of the commoditised processes that are necessary but which are not valued, or even seen, by the client…

This is an excerpt. The full article is available in the November 2016 edition of Banking Technology.