Can Open APIs Accelerate the Digital Finance Ecosystem?

Last year, Safaricom announced it would finally open access to its M-PESA API in the summer of 2015. APIs (application programming interfaces), are the technology that allow two software programs to communicate with each other. In the case of mobile money, the API defines the way a developer should write a program that successfully requests services from the mobile money platform. For example, this would allow an application like Uber or Amazon to seamlessly link directly to a mobile wallet instead of a credit card or bank account.

What makes Safaricom’s announcement significant is the opportunity it presents for developers to build applications that use mobile money to facilitate payments for new types of services. An open API will likely spur more innovation in products and services using M-PESA as a payment platform. Safaricom is not alone in this. MTN Uganda has also explored opening APIs as competition heats up, spurred by increased smartphone penetration and higher customer expectations for  better and faster applications with more intuitive user interfaces. In West Africa, Orange has opened up APIs via Orange partner but there is currently limited functionality for Orange Money, its mobile money platform.

Open APIs allow a wide range of interested parties to use them, and have already proved successful in improving usability and increasing the number of applications in other industries. The main premise is that instead of locking out third parties (i.e. BlackBerry/RIM), the provider creates a platform that others can build on to create value. The most well-known example of an open API is probably the Android platform that has already spurred the development of hundreds of different types of apps and solutions, many of which could not have been contemplated when the platform was first created. By making the Android API open source, the Android app platform has exceeded the Apple app marketplace. Android today has five billion API calls - when one app asks another to do something  - per day. 

In the context of the digital finance ecosystem in developing countries, up until now, there have been very few avenues open to developers and start-ups to leverage mobile money platforms. This has resulted in stopgap solutions, clunky user interfaces, less than optimal customer experience and the development of only relatively basic products. By actively promoting a market around open APIs, MNOs could differentiate themselves from competitors and find themselves in a much better position to compete and  lead in a rapidly developing mobile money app marketplace.

Because start-ups have been struggling to get access to APIs, they have started to circumvent this bottleneck and create their own solutions, or partner with other specialized businesses or extension services. Some of these specialized businesses are offering access to APIs for entire segments or verticals. Therefore, it is clear that open APIs can benefit developers and aggregators, and offer consumers access to better products, but do they make sense from a business perspective for an MNO?

Opening APIs are about systematically building the market share of the future with solutions that are hard to predict today. CGAP has identified six key business rationales for opening APIs:

1. Cost reduction and greater efficiency in systems integration: Open APIs can help reduce integration time and increase the number of partners through a more intuitive interface.
2. Increased mobile money usage: Better integration of third-party products results in higher transaction volumes through the mobile money platform. 
3. Access to more data: Increased traffic also improves the capturing of customer data and can provide better insights into their behavioral and spending patterns.
4. Gaining access to new revenue streams: Open APIs make it easier to design and build a broader array of applications, which could increase revenues.  
5. Customer satisfaction and loyalty: Better and more intuitive interfaces improve the ability for customers to pay for goods and services. This results in higher product satisfaction and reduced churn.
6. Enhancing brand value at forefront of innovation: Improved usability and integration makes the mobile money platform more attractive for developers and can help brand the mobile money platform as dynamic and innovative.

While it is clear that MNOs and other companies are beginning to experiment with open APIs as part of their core business, there are clear technical, financial, and market implications that need to be considered.

APIs are part of a broader push to ecosystem development as a way to drive adoption and usage of the digital finance platform. They can also improve the design and delivery of products and services that run through it. A robust digital finance ecosystem allows users to make and receive secure, convenient, and affordable payments and encourages users to continue transacting digitally. Open APIs can facilitate this process, giving more opportunities to the financially excluded to be constantly engaged with the digital finance ecosystem.