I paid my barber online
It finally happened, I made an online reservation and saw a payment option for my barber. So I paid my barber before getting service. Of course you can ask yourself would I have done that had I not known the barber in question. But afterwards, I realized that we are doing this already. For example, sometimes we pay for our trips in advance without knowing the hotel. So we are used to buying service in advance under certain circumstances. Of course paying the hotel upfront guarantees a room this is not as crucial with the barber. However, paying upfront also limits your exposure to problems later, so you have a certain assurance that the payment will not be a challenge at the location of the service delivery. In other words, convenience outweighs trust.
But to me this has also revealed something else, namely the fact that even small and medium businesses are now cloud based and accessible through commercial platforms. If we take a step back here, I’ve made the argument in my previous article that incumbent financial service providers need to start working with Fintechs because both can benefit from a symbiotic relationship. But if we start to investigate what is really driving this, it’s largely two things: 1. Convenience and user experience and 2. Technological developments in cloud and mobile computing. These two things fuel each other – it’s also a form of symbiotic relationship. Customers today seek convenience on their mobile phones and this is evident in the rise of challenger banks, while at the same time, digital transformation enables these conveniences and new business models.
Which really brings me to the business of software platforms. The GAFAs, Tencent, Alibaba, Microsoft and VISA are now the 8th most valuable companies on the planet (in terms of market capital) and they all have a similar software platform business. In essence, they are driving software platforms as a new business model for the global economy. McKinsey thinks that we will see 30% of all global revenue come from these software platforms in 2025. If we take B2B and B2C commercial platforms into account then we have to realize that SMEs are in fact also undergoing a digital transformation indirectly by joining these platforms. Through the offerings from commercial platforms, they can get all their software- and service needs addressed, be it customer relationship (bookings, communication), accounting and resource planning or even payments. This reduces the administrative effort so they can focus on their value creation effort. But of course, it is not just SMEs, in fact, with SMEs we really just see the symptom of a much broader transformation – namely enterprise software systems and payment services providers are all transforming and move into the cloud from where they can bundle their offerings as software platforms.
The driving factor is opportunity and fear – Amazon and Omni-channel is driving Wal-Mart and Carrefour to undergo a digital transformation. But even the Banks are forced to undergo a digital transformation with open banking. To enable this transformation, APIs are the key because they define the contract in how we interact with cloud services and software platforms, they clearly define the data that is being exchanged and most important of all, they are absolutely free to connect to. It’s really the need of “free” connection that is so important for scalable, interconnected business models. For incumbent payment service providers, there is only one path and that is open up, become API first, join these platforms or even become one!
But it’s really API first that companies need to take serious if they want to continue to play a role in their respective economies because with APIs comes the capability that is required to compete in this new digital world.