In my last blog, I discussed using chargeback and showback methods that will help organizations to capture value in internal APIs.
External APIs have slightly different challenges in value capture, because external APIs are what everyone (retail as well institutional customers) expects to be available as a sort of public utility.
With banks & financial houses under pressure to expose their data, be it via PSD2 regulation or Open Banking initiatives, building a monetization model just on data is no longer a viable option. Harnessing customer data, complemented with value-added service, to create a marketplace to support entrepreneurial ecosystems—be it for-profit (e.g. start-ups, SMBs) or non-profit (e.g. government, NGOs)—is monetize-able. For this, a change in business model is warranted.
Most start-ups are faced with three primary challenges: market access, capital and up/cross sell. Financial institutions can provide all the avenues in some form or capacity that could potentially result is driving solutions to the above mentioned challenges. Banks, with their insight and deep data correlation capability across ecosystems—from deposits, loans, money movement and investments to market access—can provide economically motivated external APIs to for-profit or non-profit organizations
In this context I believe there are some good API monetization use cases:
Government/bank cooperation for decreased time-to-market.
Most government financial inclusion initiatives are unnoticed or not visible to citizens. Privatized banks can act as channels to promote initiatives like government-to-people payments (e.g., social payments, wages, or pensions), bringing an unbanked population to the mainstream. Banks can monetize their connected services to government like any other sales channel. With a gradual increase in traffic, banks can co-sell or resell products—either governments’ or their own.
Capital sourcing through strategic partners.
Say a start-up is looking to raise capital and prefers the non-VC route (to prevent equity dilution). Banks can act as mediators to bring in their private/high net worth customers as an investment vehicle after proper due diligence to such startups. It’s a hybrid business model between taking a firm public and private investments. The advantage to start-ups is they get access to capital in pseudo-secondary market and banks get to create a separate product line and monetize this vehicle.
Revenue-generation via premium up/co-sell opportunities.
Say a local fintech developed a community (e.g. agricultural) market place. The fintech, being local, has exposure to the local demographic. Banks, with their global presence/associations/network can help such fintechs with global upsell opportunities within that specific community via their marketplace APIs. They would help provide revenue generation opportunities for the fintechs and, in return, the banks have the opportunity to price such API services as premium (monetize).
Each of these use cases can be potentially presented in terms of Exchange Value Model (EVM) pricing. Exchange Value Model quantifies the customer’s willingness as the price of the nearest competing alternative is adjusted for the offer’s differential value proposition. Such a pricing vehicle, which focuses on the firm’s ability to capture its fair share of the value created and presented to be consumed, is win-win for all. Banking can no longer be traditional in their approach; they should make themselves accessible to every strata of our society even if some of them are off the beaten track.
APIs have been able to lower the cost of operations and attract opportunities that were inaccessible before. Regulation and risk will play a crucial role, but I believe this will not impair banks in developing new monetization schemes.