How Will APIs Change Banking? PNC Looks Within for Answers

When people say "application programming interfaces will transform banking," they usually mean "by making it easier for banks to connect with fintech startups." But PNC is looking at what it can do with APIs on the inside.

The Pittsburgh-based bank recently held an API Fest where it asked employees from across the enterprise to team up to submit ideas for customer-facing innovation. Thirty-seven teams totaling 184 employees participated in the event, which took place in early April. Each team had to have one developer, but nontech employees were encouraged to participate.

The overall winning idea was for a card-free ATM solution. The four team members won $3,000 each and three paid days off. Other finalists used APIs for mobile geolocation to detect fraud, hands-free banking via Amazon Echo, a mobile app that maximizes customer rewards and an instant mobile bill-pay app. The entire company voted on the best ideas, and the winner and four finalists will see their ideas move on to development at PNC's innovation lab.

"We look at this as the start of a journey," said Steve Van Wyk, head of technology and operations at PNC. "APIs can recreate the way we bank. There are a lot of new and interesting ways of innovating on top of the bank platform."

With the API Fest, PNC joins a growing list of banks experimenting with APIs. In February, the Spanish banking giant BBVA announced it had rehired Shamir Karkal, co-founder of the digital-only "neobank" Simple, to the newly created position of head of open APIs. (Simple was acquired by BBVA in 2014.) In 2015, Citigroup appointed longtime executive Andres Wolberg-Stok to a new role overseeing a wholesale shift to an application programming interface model for all Citi consumer channels. And Capital One launched a developer portal, called DevExchange, last year along with three new open APIs. The portal will act as the home base for all the bank's open-source projects.

PNC has future API events planned, Van Wyk said, and will likely start inviting outside developers to participate, like the "hackathons" some banks have begun sponsoring.

Banks such as these that embrace APIs early will be much better prepared for the future than their competitors, argues Peter Wannemacher, a senior analyst with Forrester Research.

APIs "will be, in the near future, a necessary and valuable means by which banks will do their jobs," he said. "There's a component of inevitability."

Wannemacher added that APIs and open platforms will enable financial firms to build "dynamic ecosystems of value, reconnecting a fragmented value chain." This will be part of a wider, and longer-term, shift to open platforms as the foundation of a digital financial services strategy.

And while banks tend to think of consumer-facing services and products as the use case for APIs, they shouldn't neglect corporate customers, noted Linda Coven, a senior analyst with Aite Group.

"A lot of large and midmarket companies are asking how they can incorporate APIs," she said. "There's an opportunity to create a better customer experience for corporates as well."

For instance, SVB Financial Group last year hired the team behind the digital-banking startup Standard Treasury to help the bank create a channel for customers to tailor the way they share data with the bank via APIs. For instance, SVB customers would be able to program the way the bank handles payments on their behalf.

And although much of the discussion about APIs is related to how outside firms, such as personal financial management companies, might access bank data, the PNC experiment is a good reminder that they are just as much an opportunity to drive internal innovation.

"Interoperability is the goal across the organization," Van Wyk said. "As you consider benefits across the bank it is more than just the APIs — the API Fest allowed people to propose ideas in disciplines not their own."

Getting to that environment of "interoperability" that Van Wyk describes will be a slog. There is the technical side — to that end, PNC is in the midst of a five-year overhaul of its technology systems. There is also the decidedly nontechnical side — the part that explains what APIs are to its roughly 50,000 employees. To do so for the competition, the company created videos that described in nontechnical terms what an API does and used everyday examples of how APIs are already used in many mobile applications.

The bank is also plotting its strategy for working with others, such as whether apps created by third parties would have to become branded as PNC products or would be offered under the branding of the developer (as in Apple's app store).

"That's something to figure out down the road, but it won't prevent us from starting to go down this path," Van Wyk said. "These things will be solved."

PNC, he said, is seeking to adapt quickly to "all the competition that's out there," both in the form of fellow banks and tech startups.

"A lot of people have trepidation about the fintech companies, but we respect them," he said. "I think many of them will fade, but they will have made a lasting impact on the industry. Like with the dot-com boom, we are in the midst of a technology cycle. How you manage yourself through the cycle is very important in coming out in a strong position at the end of it."

Van Wyk said the bank is mindful of security concerns about opening itself up with APIs. Just as Apple strictly vets the products in its app store, Van Wyk said PNC would put any third-party app through a thorough review process "to ensure nothing would jeopardize the bank or customer data."

Some banks fear embracing APIs would turn them into an app store. But Van Wyk says that prospect shouldn't be viewed negatively.

"If you think of an iPad, Apple applications are only a few of many apps that might be on it," he said. "Why not become the 'iBank' with an app store where people can bank in many different ways?"