The opening of APIs by banks to third-party fintech companies raises new questions about how much freedom those developers have in adapting work they do for one bank to other customers, or to evolve their own businesses.
When a fintech signs up to develop an app for a bank, they get access to a vast customer base. But are they trading freedom for a narrow business model?
Citi’s Felimy Greene says a white-label solution doesn’t have to mean a fintech is boxing itself in. “Fintech companies can leverage what they learn from working with us,” unless they sign a deal that is exclusive or bespoke for a particular bank client.
He cites one fintech, Avoka, that was chosen in 2015 to partner with Citi to develop frictionless credit card or loan applications over mobile phones. Citi is now rolling out the work Avoka has provided in Europe and Latin America.
“If they [a fintech company] can optimize their product with the next customer, then that’s just life,” Greene said. “But we don’t see this as a zero-sum game. We’re creating new ways in which business can be done, and in which customers can be served.”
Greene made the comments on the back of a wide-ranging interview with DigFin; he is Citi’s Singapore-based head of digital strategy for its regional consumer banking and credit card businesses. (His formal title is regional head of customer franchise for Asia Pacific and EMEA.)
Questions for the API economy
Citi has made a splash with its Open API initiative, which began in Singapore last year and was extended to Hong Kong in March. Other banks have similar projects, although some are targeted exclusively at institutional clients.
Fintech founders now generally welcome these initiatives because many of them are eager to partner with banks, rather than attempt to disrupt them. Tech companies can rapidly push out technology and interfaces that address specific client problems, far more quickly and creatively than banks, but they lack a bank’s scale, customer base, marketing prowess and understanding of regulation.
Even so, one founder of a company that has done work for banks expressed concerns that business models are often too unsettled for these small players trying to hitch their fortunes to giant banks.
“On paper, Citi frees you [the fintech company] to do what you want with their API,” a startup executive told DigFin. “But that’s only in their sandbox.”
In other words, startups can “consume” Citi’s API in the Citi sandbox using fake customer data, and if the product is mutually deemed a success, Citi can let the startup apply to product with real data for actual customers – but protected inside Citi’s account infrastructure. That’s the setup for Citi’s working with new partners such as Honestbee, a Singapore-based online concierge and deliver service fintech.
But there remain plenty of unknowns. “They haven’t documented the rules, the cost, the process to get validation, or contract details for third-party products built on top of their APIs,” said the fintech founder.
Most dear to his heart: will a bank let a fintech that has developed an app using the bank’s API deploy the same product, or at least a facsimile, for its own clientele, independent of the bank’s customers? Or are developers forever trapped inside a bank, at least as far as that product goes, because they developed it using the bank’s data?
So far, because of the advantages a bank brings to fintech partners, Greene says these business issues haven’t come up, although he acknowledged the questions from the fintech exec are valid.
“The principle is we recognize we are not going to be able to build everything that our customers want or need,” Greene said. “We will build the core experiences essential to our relationship, but then we need to distribute some capability.”
An official at another bank’s API development team in Singapore, who asked not to be identified, said there is no single business model vis-à-vis fintech partners. In his bank’s case, the ultimate users are institutions, not retail customers, and the bank only partners with third parties that have already developed a solution, rather than run acceleration programs as Citi does.
For Citi, the pace of using third parties will depend in part on customer uptake. Greene says now about 40% of Citi’s Chinese consumer base is accessing the bank for specific things like account updates via WeChat’s messaging platform; the bank is also rolling out similar services with Line in Thailand.
But the focus among banks is white labeling fintech partners’ tech, with no decisions on many contractual details – or a consideration about what else a startup can do with the products or designs it comes up with. “We’d have to look at an example,” Greene says.