SAG_Twitter_MEME_Internal_APIs_Jul17.jpgIn my first blog, I discussed how hard it is to monetize APIs and that many banks are trying to do this the wrong way – i.e. starting with external API monetization and then bringing a similar monetization approach in-house.

Since 2008 large banks & financial houses have invested millions in developing internal APIs. The primary strategic motivation back then was (a) accessibility to heterogeneous infrastructure, (b) to focus on a core business function (c) to leverage corporate IT frameworks. With API adoption being highly pragmatic, motivation has shifted from value creation to value capture.

As APIs are considered services, just as any other traditional IT services are, then why not have IT chargeback and IT showback (memo-back)? These are policies used by traditional IT departments to allocate and/or bill the costs associated with each department's or division's usage implemented on APIs.

Is there an accounting impediment holding this rollout? Are the pricing strategies supporting these policies too cumbersome? Is today’s API monitoring primarily an external phenomenon and not internal?

The challenges are many, but I believe banks & financial houses have the resources to implement the below strategies if they truly believe APIs are services and treat them exactly the same way they treat any physical services. It’s a cultural change more than an inter-disciplinary change.

From an accounting perspective, two possible pricing strategies supporting chargeback and showback can be:

(1) Notional Pricing. This is where one aggregates the cost of services as a single unit and shared to business units that just want to “show back” to the business the cost of providing the API services.

(2) Value Added Consumption Based Pricing. This is the most complex of the chargeback models. Business units are charged specifically for every “metered or measured” chargeback, as opposed to a “quota-based” chargeback.

The above can be rolled out once an organization’s API monitoring strategy treats API usage with the same rigor it does external services, accounting procedures that codify monitored items validating response data and measuring the coverage of internal functional use cases.  

And lastly value creation by APIs now results in value capture by the organization that produces it; hence it’s no longer a free but a paid service. This is a cultural change, driven by financial benefit for the producer and accountability for the consumer.

In my next blog I will discuss external API value capture.

Learn More: Digital Transformation

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