Prospering in the API Economy Peter Hunt FLA digital conference 24 - PowerPoint PPT Presentation

Prospering in the API Economy Peter Hunt FLA digital conference 24 th October 2017 www.growcap.co.uk

What is “The API economy”? API = Application Programmer Interfaces = transfer of data and commands APIs aren’t new – payment infrastructures and clearing houses have used them for decades The API Economy can be defined as “a set of business models and channels based on secure access of functionality and exchange of data” (1) but APIs are enablers of every business . Technical advancement and digitisation drives API ubiquity. Driven by regulatory change, the ecosystem is changing rapidly; banks are opening up, data is increasingly available; the pace of change is accelerating; new business models will emerge. The asset finance market is not immune. (1) Source: https://www.gartner.com/smarterwithgartner/welcome-to- 1/3/2018 www.growcap.co.uk 2 the-api-economy/

Drivers and constraints on digital adoption Drivers Drivers  Effortlessness  Resolve a (repeated) point of pain • Who will self-select?  Tech-friendly mindset  Relationship / trust / brand • In what circumstances?  Stage of relationship • Why? Constraints Constraints • How quickly?  No need (including value add < hype) • In what scale?  Need human comfort (infrequency)  Caution of data security / sharing  Consent (explicit) 1/3/2018 www.growcap.co.uk 3

Using APIs in niches and for points of pain; adoption will set new market expectations 1/3/2018 www.growcap.co.uk 4

New business models, new competition, new routes to market for asset finance  New functionality is supported by regulatory change, heavy investment and increasing adoption  Data becomes the currency of these businesses, enabled by APIs Data & analytics Cloud accounting Bank accounts Management apps Bank products Selection apps Asset finance Credit ref products & suppliers agencies Other financial options Other data On-line providers comparison 1/3/2018 www.growcap.co.uk 5

Aligning API strategy to buyer behaviour (1)  In most business finance situations, making a first sale through a digital % of B2B buyers who find it channel is unlikely useful to speak with someone (1)  For most finance companies , digital Completely new product or service / API strategy should either facilitate 76% “human” sales or support repeat/in- life activity Previously purchased but with different specifications 52%  B2B requires a great sales force + Same product or service as great digital capabilities, not either or before 15%  Simplification of an asset finance Never - always prefer digital proposition is likely to drive 4% increased on-line sales  Frequent asset finance users are more likely to buy on-line (1) Face-to-face or telephone 1/3/2018 Source: McKinsey Quarterly, August 2017 www.growcap.co.uk 6

Example of applying APIs in face-to-face sales – working capital products, commercial banking  Integration of Companies House, credit reference agency and product information  Interactive charting designed specifically for to working capital calculations, embedded ratio analysis Informed client Calculate client’s overall decision with working capital cycle quantifed evidence and interest cost Scenario plan benefit Calculate client’s of reduced working working capital cost capital cycle saving £17m £1.8m Benchmark client “Best question against peers and prompts” to support competitors’ working RMs, sector-specific capital performance 1/3/2018 www.growcap.co.uk 7

Impact of applying APIs in established sales process – potential to create benefits at speed  Lead generation  Concept Design  Conversion ratios  4 weeks 4 weeks Build  Sales time  Test  Non-sales time  Host Go live  Relationship value  Source: Radical Company 1/3/2018 www.growcap.co.uk 8

Aligning API strategy to buyer behaviour (2)  B2C timescales are the benchmark – the new normal? What frustrates B2B buyers  Digital / API strategy should give most, % of respondents sales people more time with customers Slow reponse time 40%  Main reasons for switching = slow Pricing issue troubleshooting, re-orders are not 19% timely, sales contact is not pro-active Lack of face-to-face or phone interaction 14%  Half of B2B buyers rely on sellers to remind them to re-order – but many Lack of on-line capabilities disappoint; role of “Internet of 7% Things” relating to assets, or a Poor comparison capabilities vendor finance support activity? 7%  Acceptability of speed on repeat sales of direct v broker introduced finance? Is there another delivery & remuneration model? 1/3/2018 Source: McKinsey Quarterly, August 2017 www.growcap.co.uk 9

Opportunities & threats for asset finance  There are significant strategic, operational and performance benefits to be gained  Doing nothing is not a good option 1/3/2018 www.growcap.co.uk 10

Will asset finance distribution stay the same? Models of API adoption Personal service Digital drivers Digital drivers  Distress / comfort / delegate  Customer journey  1 st time / infrequent buyers  Immediacy (STP)  Non-flow or complex  Insight  Local  New products & services  Niche expertise  Efficiency – lower cost  Demographics  Pricing benefit  Increased product range?  Transparency potential Level of API adoption “Personal” “Partial” “Pioneers” 1/3/2018 www.growcap.co.uk 11

Data management and security  Complexity of new data architectures – ownership, management, quality  Who’s managing the data risks?  GDPR – value chain responsibility, subject access requests  Data security of linked entities  Consent management - explicit use, value chain  Due diligence  Brand contamination risk 1/3/2018 Source: McKinsey Quarterly, August 2017 www.growcap.co.uk 12

Summary (1) 1. Digitisation and government intervention is creating rapid change and new business models, driven by APIs. These API-enabled business models can set new expectations that will drive market activity. Asset finance cannot be immune 2. An increasing range of data-powered financial management tools are becoming available, to assist customers in selecting a financial product and making choices between different providers, with implications for asset finance companies 3. In the near term, API-driven digital solutions may have more impact when empowering a sales force or supporting in-life and repeat-purchase activity, rather than aiming for new new business. Frequent asset finance users may be more likely to contract on-line. 4. Benefits can be delivered very rapidly, in the right business environment. This will be difficult for many incumbent players. 1/3/2018 www.growcap.co.uk 13

Summary (2) 5. Speed - for example on proposal management, underwriting and onboarding - will be a key processing and service battleground. B2C and instant/near instant will be the new normal. 6. There are significant commercial opportunities for asset finance companies in the API Economy but also significant threats. There is a significant risk from a “do nothing” approach, from substitution and from data management / security. 7. There will remain the requirement for a personal sales approach for asset finance sales but the business model will come under increased pressure. 8. You may need a CTO and a digital strategy, if you don’t already have them! 1/3/2018 www.growcap.co.uk 14

Thank you peter.hunt@growcap.co.uk www.growcap.co.uk 1/3/2018