Research & Analysis

Digital Rails

Low-income customers around the world have unmet financial needs extending well beyond payments. They save for school fees, need loans to bridge cash shortfalls, use social network borrowing schemes, and require financing for durable goods like solar power systems. 

Large digital payments providers are not always best placed to deliver a full range of solutions to meet these diverse needs. By opening up their payments platforms to third parties—such as financial technology companies, software developers, startups, and digital banks—providers can open the door to the development of innovative products that can be brought to market quickly. With their more agile development cycles, better knowledge of niche market segments, new technology, and lower overheads, third parties are able to respond to market needs and deliver solutions that could benefit providers, third parties, and poor customers alike.

This handbook explores the opportunities open APIs present to opening up digital payment platforms, enabling innovation, and expanding digital financial services (DFS) ecosystems.

What Is an Open API?

Digital payments providers have valuable assets embedded within their platforms, notably the ability to move large amounts of money quickly and efficiently and a rich databank of customer transactions. Providers can capitalize on these assets by allowing third parties to develop software programs, known as application programming interfaces (APIs) that can “talk” to their platforms. An API makes it easy for one application to “consume” capabilities or data from another application. The provider and the third party enter into a contract defining what information should be supplied from the payments platform and what actions will be taken once it is executed, then the API extracts the data. 

By connecting third parties to established platforms, open APIs essentially turn providers’ platforms into digital rails that a developer can leverage to deliver innovative services that address the needs of many customers. 

Why Are Open APIs Important for Digital Payments Providers?

Opening up payment platforms for third-party innovation can create important new business opportunities for digital payments providers:

  • Revenue growth. Providers can increase revenue per customer, acquire more customers, and monetize assets previously unavailable to third parties. More solutions create more use and deliver more revenue.
  • Strategic positioning. Open APIs can enable providers to strategically position themselves at the center of emerging DFS ecosystems, where third parties will play an important role in the future.

However, open APIs can expose providers to risks, including cannibalization of revenue, reputational risk, consumer protection/fraud, and internal conflicts. In many industries, these risks already have been mitigated, generating a wealth of lessons learned that can inform best practices for digital payments providers.