API - The Essential Commerce Plug

I wanted to follow up on my earlier article – “Orchestrating Connected Commerce – What’s Next?”

I had modeled below the need for a strong API/Developer ecosystem to build a layer of cohesiveness amongst players to orchestrate a good show for their audience.

Wanted to talk a bit more here on the importance of the API economy and how critical it is for well-orchestrated growth of everything commerce.

A couple of key things which are fairly significant to this conversation:

Consider this:

1.????The global population born post-1980 is 63% representing approximately a similar share of global shopping. This demographic which is primarily millennials and Gen Z are digital-first in everything they do, live in an on-demand mindset and want to associate with commerce in a more lifestyle integrated manner.

2.????By 2021 mobile will represent over 60% of global e-commerce with approx. 56% of all e-commerce transactions paid by a mobile wallet.

3.????By 2021, there are going to be an equal number of mobile phones on this planet as bank accounts.

4.????Mobile network connection speeds are going to increase three-fold from 2016 to 2021.

5.????Mobile-based biometrics will authenticate $2 trillion of retail payments by 2023.

6.????According to global industry estimates of queue less checkouts (anything outside of traditional checkout environments in brick and mortar), 236 million purchase transactions were made in 2018 which is estimated to grow to over 2 billion by 2023.

7.????Big tech platforms like Google, Amazon, FB, Apple – which have built eco-systems around digitally-driven vectors like search, mobile and social and are highly adopted by the above demographics have all entered financial services and commerce in more ways than one from wallets, marketplaces, payments, financial services to crypto-currencies. These companies are fairly tightly aligned to trust as well as the digital experience needs of this audience. A replica of this can be seen with large Chinese platforms (Alibaba, Tencent etc.) which are running at many multiples over their US counterparts.?

Secondly, as part of the Covid-19 impact – the large scale movement to digital has been fairly astounding. Just here in the US over the last 8 weeks, e-commerce penetration of overall retail sales has almost doubled. This is equivalent to the last 10 years of its growth.

As is evident, the trajectory exists, the current pandemic is the catalyst. The sheer urgency to move everything to digital is real and undermining roadmaps, investments and resources at a pace not seen before. As a result, it almost does not leave room for legacy architectures which work in silos and at best look beautiful with the lights turned off. The need to market digital solutions and capabilities for retail and financial services which can interplay with others is a matter of survival for many industries.

Just to understand the scale of inter-connectedness we are seeing in front of us, consider the following:

Over the last 100 years since the telecom revolution, which was primarily a one to one network, we as a global population have moved through computing, web, cellular phones, smartphones, cloud, and edge computing/IoT. Each progression came with a significant increase in the number of users, applications and also the interconnectedness of networks created as a result. We are at a point where billions of users interact with each other across industries through platformization of services. We are living in a connected and digitized world.

How our smartphones interact with the telecom networks and platforms like Google and Apple and all the embedded apps within them is just the tip of the iceberg. The ability to collaborate through digital platforms at scale and create lasting human value and impression is very real. Across users, industries and networks according to IDC by 2025 we would have “shared” 175ZB of data. (Fun fact: 1 Zettabyte is a Trillion GB). Connected platforms, economies and societies will produce four times more data as is generated today. And this data is collected, captured, monitored, consumed, shared and monetized across industries. The ability to do that better is what is going to define orchestration. APIs significantly enable this.

The trends in the larger commerce space follow a similar pattern, although regulation, security and privacy concerns are a bit more pronounced here than elsewhere.

Let’s look at the core platform drivers which are needed to enable this kind of interactions and inter-connectedness of data:

1.????Value is in creating something (Product).

2.????Greater value is when you enable creation and propagation (Platform)

3.????A platform allows coexistence of disparate players and lets them thrive. Players can multiply value by interplaying with each other as part of the platform (e.g. Uber)

4.????Successful platforms will eventually lead into eco-systems/network effects (e.g. Amazon, Salesforce).?More demand is created by more suppliers joining the network and that becomes a vicious cycle

5.????The cost of interaction is substantially lower than the value you create

6.????The ability to orchestrate the above creates a significant value proposition which is hard to beat

7.????Network economics = (network effects) + (orchestration) – (cost of interaction)

To cultivate an ecosystem and propagate network orchestration is key for digital platforms to thrive. This is enabled by creating a fabric for collaboration and technology architectures to speak to each other. APIs are a core enabler in this direction.

How does all of this relate to the broader commerce space and why do we care?

I do believe as players and products mature to serve one common overarching objective which at its highest level of pronouncement is the ability to create relevant offerings that tightly align with consumer lifestyles and experiences. Forced by market dynamics, the need to survive and part by the fact that no one company, product or platform can boil the ocean themselves, we are seeing an interplay within this space leading to a scale of collaboration never seen before.

API’s are the cornerstone in this movement - the ability to interconnect with different entities (internal and external) at scale and add value.?Some key challenges and opportunities:

1.????Retail payments: diminishing returns to be made from solely selling payment processing

2.????Banking: regulatory and compliance bottlenecks, legacy technology, corporate bureaucracy, regional limitations

3.????Fintech: narrow product focus, limited resources, need to scale, do not want to rebuild an entire bank

4.????Big tech platforms: started as social media platforms (Facebook as an example) and find it a natural extension to move into commerce

As discussed in my earlier articles, the boundaries between payments, traditional banking, fintech and platform players are overlapping for more reasons than one.

Specifically, from a consumer vantage point, we can see why the span of the above players is overlapping. Building lifestyle based relevancy is not easy and needs collaboration amongst players.

APIs are essentially boundary resources through which entities (products, platforms and organizations) can share functionality and provide entry points for external developers to create new functionality by contributing as well as consuming data elements for interoperability.

Fintech and banking as compared to traditional retail have seen a significant disruption over the last 5 years. The big reason is managing money and related services is core and the consumer has reached an inflection point of choosing between trust and experience.

-??????19% of FIs in the US are new entrants and have captured 3.5% of total banking and payments revenue.

-??????Significant consolidation by the top 5 banks has led the smaller banks to work out models of partnership with Fintech players and a significant amount of collaboration to remain valid and survive.

-??????Traditional brick and mortar retail has its fingers locked in legacy technologies making innovation to run at the same pace as e-commerce fairly difficult. However, post COVID-19, there has been an increase in collaboration between players to change this across retail verticals.

A classic example of what it means especially today to create a best in class interconnected experience when things start to open up, think about the cinema/theatre business post COVID-19. A very insightful infographic from Vista a global ISV in this space.

Most of this can be achieved only through a fairly advanced technology stack that can play with multiple vendors.

A look at the different segments with representative examples:

FINTECH

BANKING

PLATFORMS

The show must go on – there will be players and then there will be orchestrators but there is no room for disharmony any more - Play well!

If Bobby McFerrin was into Fintech he would have sang “don’t worry, be API”.

To summarize, loved what PayPal’s Robert Clarkson recently said in reference to the current happenings and the fallout, “Survival is the fierce grandmother of revolution”.

Reference reading:

The Essential Digital Strategies

A great book to read by Peter Csermely: Weak Links: The Universal Key to the Stability of Networks and Complex Systems