A growing number of digital financial services (DFS) providers are deciding to open APIs in emerging economies. With more businesses looking for ways to transact online during the COVID-19 (coronavirus) pandemic, open APIs could play a role in the response. But building a great API product is only the first step in the process of opening APIs. Next comes the challenge of engaging the third-party developers who ultimately will use the API to build new financial and nonfinancial services. And just as different types of developers have different API needs, they also require different engagement strategies.
As detailed in a new CGAP slide deck on how DFS providers can engage developers with their APIs, a DFS provider generally will be targeting one or more of the following developer segments:
- Standalone coders who are passionate about technology and are seeking APIs for their projects.
- Early-stage innovators whose developers are looking for APIs to build new products. These start-ups may not have a fully tested business model yet.
- Growth seekers, generally established tech companies with growing revenue that want to integrate APIs into their core business.
- Enterprises that are established and want to integrate APIs into their automated workflows to improve efficiency or increase revenue.
When a DFS provider decides to open APIs, it must consider its business goals and decide which customer segment will best help them meet these goals. For example, a DFS provider that wants to generate short-term revenue may be better off targeting large enterprises. Early-stage innovators may be a more appropriate segment for established DFS providers that want to fuel innovation, expand integrations with third-party products and drive transaction volumes over the medium term.
Once a DFS provider builds API products suitable for its target segments, it should identify appropriate ways to engage those users to increase awareness of the APIs, simplify onboarding and promote use. Technology is available to make this journey from awareness to use and growth as smooth as possible for third parties. However, DFS providers will need to be strategic and prioritize resources. For example, while providers often default to organizing hackathons, these events tend to be most effective with standalone coders and early-stage innovators. The more established segments — growth seekers and enterprises — often respond better to direct engagement and customized pricing.
An API product and engagement strategy may evolve over time along with the DFS provider’s business needs. For example, the online payment processor Stripe initially focused on standalone coders and early-stage innovators rather than larger businesses. Its engagement activities and resources reflected these segments’ needs: clear, detailed API documentation; easy-to-use SDKs; strong customer support; a two-minute onboarding option for fast-moving start-ups and a portal for start-ups anywhere in the world to register their businesses. Over time, Stripe has diversified its focus and initiated engagement efforts for larger players. For example, it added customized functionality for Lyft, the U.S.-based ride hailing service, to enable drivers to cash out via the Lyft app.
WeBank, the first digital-only bank in China, focuses almost exclusively on enterprises. It takes a more traditional sales approach, with internal teams conceptualizing, short-listing and building products that the company pitches to potential partners. WeBank acts as an external product team for a partner and integrates the API into the client’s product or process. The business model, typically a revenue-sharing agreement, reflects the partnership nature of the collaboration and the level of effort invested by WeBank. This is a business-to-business-to-customer strategy that aims to embed financial services, such as loans, into the products of enterprise partners that have large customer bases.
For DFS providers looking to open APIs, clarity on their business goals and target segments is an essential starting point. From there, it is important not only to build appropriate API products but to tailor engagement strategies to the developers.
Senior leaders at DFS providers who would like more information about how to engage third-party developers with their APIs, see “A Guide for Financial Services Providers: How to Engage Third Parties with Your Open APIs” (CGAP 2020). Operational teams in need of greater detail and examples should refer to this more detailed guide.