If your business is not already using Application Programming Interfaces (APIs) to integrate into modern, digital economic infrastructure - or at least not getting ready to do so - then you risk being left behind.
The COVID-19 pandemic changed the way the world works. We are now in a truly digital era. The ways we interact with the products and services we consume are almost entirely online.
“[APIs] form part of the modern way of building systems, allowing them to be modular, flexible and interchangeable rather than rigid, monolithic and tightly coupled.”
It’s not surprising then our expectations – and for businesses, that means customer expectations - have changed. More and more, we experience immediate and best-in-class experiences in our personal lives through digital natives like Google, Apple and Amazon.
And when they’re held side-by-side with the slow, manual and opaque experiences delivered by traditional organisations, things once accepted as a fact of life have become frustrating.
Why do I have to wait? Why can’t you tell me where my package is? Why can’t you pay me immediately?
The tolerance for these traditional experiences is rapidly declining.
In this digital world, the opportunity for business lies in the quality and speed with which software is built, the speed with which data is delivered to support decision-making, and the control over this in largely remote settings. These are quickly becoming competitive points of differentiation.
Critical to this shift are APIs, bridging programs which allow separate applications to work together.
They form part of the modern way of building systems, allowing them to be modular, flexible and interchangeable rather than rigid, monolithic and tightly coupled. Modularity makes systems more resilient and easier to change. It saves time. It saves money.
Usage of APIs has skyrocketed in recent years. Among software developers alone, some 90 per cent expect to maintain or increase their use of APIs in 2022. This view is shared by enterprise leaders, with 97 per cent seeing APIs as essential to their organisation’s digital transformation.
And the investment is expected to continue with one survey suggesting companies are preparing to pour millions more into APIs in 2022 – with the financial services sector leading the way.
There are a number of key attributes of APIs that make them truly valuable. The first is their connectivity.
When we talk about APIs, we’re talking about machine-to-machine connectivity or - as I sometimes like to describe it - a pipe for information.
In banking, a lot of our pipes have traditionally been built around file delivery and batch processes. It’s still an extremely popular method of integration for our customers.
Over the last three years, ANZ has seen API-based payments initiated by customers only grow from 1 per cent to around 7 per cent of our integration flows. That’s quite modest in terms of API usage and still leaves 93 per cent of our payments delivered via traditional file-based integration.
I suspect this slow rate of adoption is largely due to two reasons.
The first is most legacy systems can’t handle APIs, at least not natively. And the reality is many large corporates face the same challenges banks do in terms of managing legacy systems amid their digital transformation. Unless they’re ‘born digital’, so to speak, they’ll be relying on old tech sitting in a data centre somewhere churning through batch after batch.
And while we are making welcome progress in moving away from these physical footprints, the batch processes they are synonymous with aren’t necessarily a bad thing.
Which brings me to my second point: APIs aren’t always the best tool to use in every situation.
What file-based integration really excels at is moving large amounts of structured data around and managing compatibility issues between systems — for example, abstracting away differences in outputs and formats between enterprise resource planning (ERP) and industry payments systems using translation and data enrichment logic.
And because legacy systems typically operate in batch and file processes, this can provide an easy pathway to automate some workflows and get some benefits early while you work on ‘API-enabling’ your organisation.
One interesting example ANZ came across in recent times was when a customer used our data-enrichment capability to address deficiencies in beneficiary account data held in their systems.
This was a multi-national company with several legacy financial systems. Their beneficiary data had aged over time, with gaps that were generating a lot of manual work (things like BSB details not being compliant with newer industry standards and the like).
ANZ implemented a file-based solution to automatically repair data deficiencies to ‘in-flight’ payments and then report back to the customer so they could correct their data over time.
It was a great outcome for the customer. They minimised processing delays for urgent or time critical payments. They reduced the need for manual intervention and therefore the workload for their operations teams. And they avoided what would have been an expensive data remediation project, along with reporting to correct their system data over time.
Great solutions don’t always require an API. File-based integration is still a pragmatic way of solving real business problems and perhaps a reason for why API adoption has been slow.
Where APIs really shine is when we talk about real-time use cases. While a file is typically an accumulation of information over time for processing later, you can think of APIs as a stream of information processed in the moment.
Take billing for example. Traditionally, information about bank fees and charges would be received by ANZ’s customers through invoices and PDF files.
As a result, finance departments would need to invest significant manual effort into collating this information to get even the most basic insight around total monthly fees across all their accounts.
And when you consider that many ANZ customers are regional and multi-banked, that problem is multiplied by each banking relationship they have.
But by using APIs to connect our systems internally, ANZ has been able to present information around fee payments and product usage to our customers on demand through our omni-channel service, allowing them to make better informed decisions around optimising their banking.
That solves an important issue for customers - but only for one of their banking partners. The real evolution would be for each banking partner to provide an API that could deliver their respective information directly into the customer’s treasury management system and display it in a way that works for them.
One of the key tenets of modern digital business models is the recognition customer needs can be better met through a combination of partners than through a single organisation’s capabilities alone.
In the past, the ability to easily exchange information between organisations was hindered by a core philosophy of network security which treated an organisation like a walled garden. Data could flow freely within those walls but moving beyond them was difficult.
APIs solve this issue by moving to a ‘zero trust’ or ‘continuous-authentication model’ which, in layman’s terms, means relying less on where the request is coming from and more on authenticating each individual request. This aspect removes a traditional barrier to partnering with other organisations.
The ability provided by APIs to aggregate data for better decision-making or curate best-of-breed capabilities to either deliver operational efficiency or better meet customer needs should be treated as a strategic priority for any business looking to excel in a digital world.
The agility this provides, along with the optionality to swap out an underperforming partner for another, will help businesses better respond to an ever-changing and uncertain environment.
Leigh Mahoney is Head of Wholesale Digital at ANZ Institutional
This article was originally published on ANZ’s Institutional Insights website
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
05 May 2021
24 Mar 2022