API economy: Fuelling the digital transformation among enterprises

Digital transformation is gaining pace across organisations. And an increasing number of enterprises are making a digital-first approach as consumers are fast adopting apps for transactions. Globally, users are tapping digital channels like apps for ecommerce transactions, online booking of food & flight, and ordering medicines to do many more activities. Amid such rising digitalisation, APIs (Application Programming Interfaces) has emerged as the driver of such transformation. APIs are responsible for connectivity in enterprises that are coming up with a higher number of apps and digital platforms for improving operational efficiency with a better consumer experience. According to market research firm Markets and Markets, the API management market size is expected to touch $13.7 billion in 2027 from $4.5 billion in 2022, at a CAGR of 25 per cent during this period. 

Change in approach with evolving complexity

Joining the API economy has become imperative now. Because business complexities and customer expectations are changing very fast. Currently, many organisations operate in silos when it comes to interacting with partners, third parties, or even customers. In most cases, business transactions don’t complete without a human interface. The physical store, phone, fax, or website- all require human interventions to complete a purchase or transaction. With the advent of digitalisation, these transactions are now being processed through the company’s own mobile applications or websites. 

However, in a fast-moving business environment, these measures may fall short. As enterprises migrate to cloud computing, the need for connectivity is ever-increasing. This is leading to several apps and digital platforms within an enterprise being launched to attract new customers. To effectively connect with the customers, suppliers, third-party vendors, and partners, businesses need to deploy APIs. Because API is a bundle of code that essentially acts as a bridge between digital services, allowing one app to access information or capabilities from another. This, in turn, throws open a myriad of opportunities.

Whole ecosystem benefits  

API economy has multiple benefits for enterprises across sectors. Companies can reduce their go-to-market time substantially by leveraging APIs. When the internal APIs are well-documented, these can be used to reuse and innovate for future projects. In this way, new product development time is reduced. In turn, businesses enjoy better process efficiency and cost savings. Also, companies can have a first-mover advantage in case of early innovation. Efficiency reduced cyber risk and faster project delivery are the resulting outcome. 

Secondly, Joining the API economy will not only benefit the company’s own offerings, but it will also supplement the growth of entire partner channels. Partners can integrate their APIs with that of the company that will augment the product offerings. This way, more customers can come in. Moreover, third-party vendors can also leverage the data and service to promote the company’s brand, resulting in more customers. In both cases, the enterprise will benefit from expansion in distribution channels. Even, tech-savvy customers can integrate their APIs with the company’s APIs, leading to greater transaction volume. In this sense, joining the API economy means transforming some of these internal, private interfaces to more public-facing use that leads to more business.

Being a part of the API economy leads to a better customer experience, which is critical for attracting and retaining new customers. As the connectivity with the customer ecosystem improves, the company is able to receive real-time feedback on its offerings. It helps in addressing the pain points and improves the overall customer experience. For instance, a customer buying a car insurance instantly after purchasing a car. Such customer experience will only be possible through API integration.

Open Banking

APIs economy can act as a crucial component for banks’ efforts to connect and re-connect with their customers. This will create an ‘Open Banking’ ecosystem for banks, an engaging and influencing concept adopted by many financial institutions around the globe. Simply put, Open Banking is a unique ability to facilitate communication and transaction with internal business units and functions as well as with third-party partners and customers consistently and securely through the use of APIs. This way financial institutions can handle the existing products more efficiently and provide a broader range of products to their customers.

API economy specifically comes into the advantage of some of the well-established financial institutions and banks that have legacy banking systems. Efficient API integration enables these banking systems to interact with the external world and offer a variety of products and services to their customers via different digital channels. Hence, the banks can leverage the innovations of fintech start-ups by way of SmartAPIs and move beyond the traditional banking infrastructure. With an open banking API strategy, banks can allow fintechs and technology firms to create innovative solutions and plugins for the bank’s IT ecosystem.

While joining the API economy has multiple benefits for various sectors, it has its own set of challenges in terms of security and implementation. Therefore, enterprises should choose the right technology partner to be part of the API economy. It will lead to both cost savings and higher revenue on a sustainable basis.

The article has been written by Shubho Pramanik, Senior Vice President at Applied Cloud Computing (ACC)