Should Digital Financial Services Providers Prioritize Open APIs?

One of CGAP’s partners recently faced a challenge common to many digital financial services (DFS) providers that are trying to grow an agent-based mobile money service: its customers were using their digital wallets for money transfers but not digital payments.

As part of this partner’s strategy to increase digital payments, it decided to create an open APIs product that would make it easier for more online merchants to integrate with its payments platform. It hoped this would create additional use cases for customers, generating revenue streams and customer stickiness.

Photo: Jan Mohammad Shaikh
Photo: Jan Mohammad Shaikh

However, embarking on an open API strategy doesn’t come cheap. In this case, the strategy would require the provider to reconfigure its business structure and invest in IT upgrades. Like many businesses, this provider had other IT and product initiatives competing for time and resources. The product team tasked with open APIs realized that to implement the strategy, it would need to get buy-in and resources from upper management.

By following a five-step process and involving senior leadership in the last step, the team was able to prioritize specific API offerings and get its strategy off the ground. The steps below may be useful to other DFS providers that are wondering whether APIs should be a priority for their businesses and, if so, which APIs they should focus on first.

1. What are the key strategic objectives of the business?

The starting point for an open API strategy is identifying which business goal it supports. As CGAP’s partner illustrates, open APIs can advance a range of business goals. These include:

  • Acquiring new customers
  • Acquiring online merchants
  • Defending against digital competitors
  • Delivering more innovative products to grow use
  • Generating new revenue streams

2. What problems do open APIs solve to support these objectives?

Product teams should identify how the proposed API products solve the business problems that help deliver the business goals. Below are some examples of the roles APIs play in solving business problems.

Roles of Open APIs in Addressing Business Problems

3. Is the business ready for open APIs?

Once there is an understanding of how specific open APIs relate to business objectives, providers should assess the gap between what currently exists in the business and what is required to implement an open APIs strategy. Areas to focus on might include:

  • An API platform integrated into the business’s core systems and tools for third-party developers who will use the APIs, such as an online portal, API documentation, curated forums, API key access, sandbox environment and community management tool
  • An IT team with the requisite skills to execute the open API strategy or access to supporting resources
  • A sales team ready to target open API customers, which generally requires online marketing and sales activities
  • A set of processes that support a streamlined, largely self-service onboarding process for third parties

4. Are open APIs a better approach than alternatives?

Providers should consider alternative approaches and weigh the costs and benefits against the proposed open API strategy. For example, a company like CGAP’s partner that wants to increase merchant payments over its platform should consider the impact of open APIs vs. directly integrating with merchants. In this scenario, the provider should ask: How many online merchant businesses are in the market and how big are they? What is the revenue potential of direct integration with a small number of large online merchants vs. connecting with a large number via open APIs? Finally, what is the cost impact to support online merchants with and without the self-service tools enabled by APIs?

5. How does the business case for open APIs compare to other priorities?

After arriving at a sound understanding of the business case for open APIs, they can be compared to the business cases for other priorities within the business. While the open APIs product team can lead Steps 1 – 4, it is crucial to involve senior leadership at this stage. This ensures the whole team has a stake in decision-making, is aligned on the agreed-on product prioritization and understands its involvement in next steps.

CGAP’s partner came up with an interesting approach to this step that worked well. The product team presented a “prioritization matrix” to management that situated products — some of them being open APIs — based on their ability to increase customer acquisition on the one hand and readiness to implement, on the other.

Prioritization Matrix: Management Team Assessment

Prioritization matrix

The team also presented revenue potential for each product, again laid out according to each product’s ability to acquire customers and readiness to implement.

Revenue Sizing: Overlaid on Prioritization

Revenue sizing; graph 2

After this exercise, the management team agreed that open API products for online payments were a high priority with great potential to drive customer acquisition due to the recent increase in online shopping. The team also decided that open APIs would allow for a low-cost process to onboard a broad and growing number of online businesses. The fact that the company had already invested in an API gateway meant that it was already in a good position to implement the strategy. In this exercise, the sizable opportunity of a charitable donation-based product was identified as potentially being unlocked by APIs. It then set about creating a minimum viable product to test the value proposition and understand whether open APIs would support a number of charity use cases.

For DFS product teams looking to implement an open API strategy, a first major hurdle is getting their management team to buy into open APIs and invest in them over other business priorities. A structured approach, like the one CGAP’s partner used, can allow the team to develop a deeper understanding of the API product’s value and requirements and to ultimately get the buy-in it needs to develop and release a successful product — be it an open API product or another product.



What types of APIs are digital financial service providers opening in developing countries? CGAP has been keeping track and spotting trends.

Learn about five steps digital financial services providers can take to design open API products that appeal to third-party developers in their markets.

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