Alexa, What’s in my Wallet? Open Innovation at Capital One
In an effort to spur innovation, Capital One has opened up access to its data for external developers via API. To what extent can they shift toward the business model of technology platform, and what organizational changes will they need to make to do so successfully?
In a world of increasing digitalization, banks have lagged behind fin-tech startups in terms of innovation and face an additional threat from large incumbent technology firms. [1] To catch up, some banks have begun to tap external sources for innovation, and even shift outright toward the model of technology platform. Capital One, one of the largest providers of banking products and credit cards in the US, is leading the charge among financial institutions into the developer community.
When technology and design approaches are uncertain, and customer needs are varied or not yet fully understood, opening innovation to the outside world can have considerable advantages over traditional internal development. [2] For an example, one need look no further than the Apple iPhone and App store. Thousands of external developers have contributed applications, greatly enhancing the value of the iPhone to the consumer. [2] At the same time, Apple can outsource the development of content, including the costs and risks, while focusing on maintaining the iOS platform. [3]
Banking represents a similar opportunity for open innovation. While banks sit on a mountain of transaction, product, and customer data, the best ways to improve digital services are not clearly defined, and app development lies beyond the banks’ traditional core competencies. By opening access to third parties via API (Application Programming Interface), banks can crowd source new and innovative solutions for their customers. [4]
Unlocking Outside Innovation
In 2016, Capital One launched its developer portal – Capital One DevExchange – with three open APIs, and many of the best-practice features that developers have come to expect: documentation, testing environments, and reference applications with sample code. [5] Since then the company has released additional APIs, as well as several open-source projects, and has also hosted hackathons where external developers and other stakeholders can collaborate on new projects.
Already, these initiatives have resulted in new and useful services for Capital One customers. As an example, AwardWallet, a loyalty account and travel plan tracking tool, was able to integrate the DevExchange’s Rewards API into their site to pull in a users’ Capital One Rewards Balance information. AwardWallet can then send the user a notification when the balance hits a certain amount, letting them know when they have enough points to redeem for a flight. [6]
An alternative example comes from an integration with another platform service, Amazon’s Alexa. Capital One customers with the Amazon Echo can check account balances, pay their credit card bill, and redeem rewards points simply by asking Alexa. [7]
Looking ahead, Capital One has a pipeline of new APIs to be released, including a Customer Transactions API, which would allow a customer to view the Capital One transactions within another app. Xero, a provider of cloud-based accounting software to small businesses, has already emerged as a partner. [8]
Toward a Banking Platform
While the progress made by Capital One so far is significant, there are several steps they can take in the future to further solidify their position as an innovation leader and the partner of choice for developers. These include a greater variety of APIs to continue to attract developers, a new focus on the developer experience, and new methods of distribution to consumers. [9] Having discussed some existing and potential API applications above, we will focus on the second two factors here.
Beyond simply releasing additional API products, Capital One should focus on further fostering the developer community. First, this means that the definition of “customer” must also include software developers and partners using the APIs. For now, the developer ecosystem for Capital One is in a relatively early stage – product development is encouraged through hackathons and there is online support and documentation for API users. As the portfolio of DevExchange products expands, more resources will need to be invested in maintaining them and carrying out support services. Capital One’s organizational structure will need to continue to evolve as the community matures.
Another key success factor revolves around the way that consumers ultimately interact with the new innovations developed as a result of the platform. Today, while there has been a great variety of applications developed, there is no single place for a consumer to find and compare all of them. In the same way that we have an Apple App Store, could Capital One develop enough traction to establish an app market place of its own? [9]
The key open questions revolve around the relationship between Capital One and its two customer bases: banking customers and developers. Should new APIs be open and free to developers, or limited to partners who pay per usage? What sort of value sharing arrangement will allow for the greatest proliferation of ideas?
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Sources
[1] Karen Mills and Brayden McCarthy, “How Banks Can Compete Against an Army of Fintech Startups,” Harvard Business Review, August 15, 2017, [https://hbr.org/2017/04/how-banks-can-compete-against-an-army-of-fintech-startups], accessed November 2018.
[2] Kevin J. Boudreau and Karim R. Lakhani, “How to Manage Outside Innovation,” MIT Sloan Management Review, Vol. 50 No. 4, Summer 2009, via EBSCO, accessed November 2018.
[3] Birgitta Bergvall-Kareborn and Debra Howcroft, “Crowdsourcing and Open Innovation: A Study of Amazon Mechanical Turk and Apple iOS,” Presented at The 6th ISPIM Innovation Symposium – Innovation in the Asian Century, Melbourne, Australia (December 2013), accessed November 2018.
[4] Kevin J. Boudreau and Karim R. Lakhani, “Using the Crowd as an Innovation Partner,” Harvard Business Review, April 2013, via EBSCO, accessed November 2018.
[5] Bryan Yurcan, “How Will APIs Change Banking? PNC Looks Within for Answers,” Harvard Business Review, April 29, 2016, [https://www.americanbanker.com/news/how-will-apis-change-banking-pnc-looks-within-for-answers], accessed November 2018.
[6] Capital One, “API Case Study: AwardWallet’s Integration of Rewards API,” [https://developer.capitalone.com/case-studies/RewardsAPI-AwardWallet/], accessed November 2018.
[7] Capital One, “Alexa, ask Capital One, what’s my balance?,” [https://www.capitalone.com/applications/alexa/], accessed November 2018.
[8] Capital One, “Speed to Innovation: Xero’s Customer Transactions API Integration,” [https://developer.capitalone.com/case-studies/Xero-Case-Study/], accessed November 2018.
[9] Anupam Majumdar, Sudipta Kundu, James Foster, “Competing in the New Era: Finding Value in Open Banking Ecosystems,” Accenture, 2018, [https://www.accenture.com/t20180706T062051Z__w__/us-en/_acnmedia/PDF-82/Accenture-Competing-New-Era-Open-Platform-Banking.pdf], accessed November 2018.
Really interesting article! Thank you for sharing! One thing that came to my mind was whether it will be more difficult to adopt crowdsourced innovation in banking than in other industries. Banking is obviously really focused on security and also a reputational business. While crowdsourcing seems like an amazing tool to enhance innovation , it leaves some of the control over product development outside of the company. If something goes wrong the blame is inevitably on the bank even though it may not technically be responsible for the issue. One example of such risk is the controversy over voice-controlled banking: https://www.bbc.com/news/technology-39965545. I’m wondering how quickly they will be able to gain their customers’ trust… I personally won’t be using Alexa for banking any time soon But I will keep an eye on this super interesting subject. Thanks again for bringing it to my attention!
Thank you for sharing your insights. Despite all the regulations, I was amazed to find out that Capital One has already took a step forward to integrate open innovation in the banking industry. I agree with your concern that currently there is no single integrated platform for customers to find products, so that attracting a large customer base is a primary challenge in the short term. I believe one of the key advantages for open innovation is to create network effect and connect customers with a variety of applications on the system. I am curious how they will make such an expansion by breaking barriers in the industry.
Interesting article. Happy to see that banks like Capital One are moving ahead with initiatives like these, and I hope that they transform into a better experience for customers. One of the issues I see with this type of platform is how data could be used by developers in malicious activities, I’m thinking cases similar to the Cambridge Analytica scandal. Privacy should be a critical component and I guess working just with trusted developers or companies is the way to go, at least in the beginning.
Great article, and agree with many of the points previously made on security and responsibility. There’s a reason that financial services firms have historically moved at a slower pace; they carry the great burden and responsibility of protecting consumers’ financial information, and moving too quickly could put this information at risk and be detrimental to their reputation. I think Capital One has done a great job of constantly redefining who they are, often playing outside the realm of a traditional bank. One example is their Capital One Cafes, which strengthen their relationships with consumers beyond simply being their place to bank [see article: https://www.bizjournals.com/washington/news/2018/10/19/first-look-d-c-s-new-capital-one-cafe-is-a-bank.html%5D. It’s no surprise that they’ve embraced an approach of open innovation to continue stretching their own limits.
One question I have after reading this is what the real value add of these projects has been to banking customers. Being able to ask my Amazon about my credit card balance when I can just log into the Capital One app directly, doesn’t seem to be as big an advancement as they are making it out to be. I struggle with the trade-offs presented here between providing trendy app integration versus protecting a consumer’s data and privacy. I hope they are further discussing the value add these services provide and the risks they present as well.
Thank you for sharing this! Right now seems to be the age of fintech start ups and new technologies, and I’ve always wondered about how the more traditional banks are reacting to the high levels of digitization in the industry.
This appears to be the best way for Capital One to get the high level of programming it needs for additional product offerings for customers. But I do have some concerns. One big question I have revolves around control. Capital One plays in a highly regulated industry, and since they work a lot with private data from customers, I assume they need at least some level of control over apps and API products. Would this open innovation initiative backfire for Capital One if they don’t develop these things internally?
That being said, what stops Capital One from investing in a robust internal development team? There would be additional costs, but might mitigate some of the risks and assist with new product development.
I think there is a good case to be made that the new APIs be left open and free to developers, versus limiting their access to paid users. As is the case in open-sourcing IBM Watson’s code to increase ‘out-of-the-box’ thinking, Capital One could benefit from the creativity of developers outside of the scope of their organization to drive future progress.
Thanks for this really interesting article! I’m a CapitalOne user, and I was curious about the some of the transitions they’ve made in their mobile app–I wonder how much of those updates have come through open innovation! Given the sensitivity of banking data and some of the security concerns brought up by commentators above, I’d be curious to learn more about how Capital One is developing its developer sandbox and what kind of data they are choosing to provide. I’m also curious about the two-sidedness of this use of open source innovation–how much are developers able to both iterate on each other’s products as well as tinker with Capital One’s existing materials? How much is CapitalOne able to provide tools back to developers that they’re able to take with them other places. Lastly, I think the incentives question you raised is a really interesting one–given customers’ low expectations from their banking aps, can hackathons be a sufficiently sustainable model? Or do you think CapitalOne needs to create a more sustainable and systematic way to ensure it is constantly innovating and able to keep on top of open source innovations in the fintech and banking sectors?
I agree that this is a great way to drive innovation in Capital One. We are already seeing the huge tech companies/platforms like Microsoft, SalesForce, Google, etc. providing APIs for free to encourage developers to build on their platforms. I know that Salesforce and Microsoft both have developer conferences regularly. To take this further, I wonder if Capital One can provide additional incentives to developers to encourage them to build more apps.
Crowd sourcing ideas for fintech innovations is an interesting proposition. I definitely understand where the value could come from but I wonder how Capital One and other banks using similar approaches is tackling issues of disjointed apps. With many independent developers creating apps individually, how does Capital one create a long-term app strategy that has a variety of tools that are able to integrate with each other and support a balanced set of customer needs. Perhaps Capital One is able to control for this by providing specific guidelines in its coding challenges and strategically incentivizing specific types of app developments. In an open marketplace where developers create apps for Capital One, how does Capital One also prevent these developers from creating similar technologies for competing banks?
I learned a lot through this article – thanks for writing it! It seems like Capital One is an early mover in this direction of sharing data with other service providers. https://www.businessinsider.com/jpmorgan-announces-partnership-with-plaid-2018-10 presents a case of JP Morgan Chase working with a third party to do just that. Interesting to think how this has become a way in which banking service providers are competing. I think you start to see the downsides of this type of data sharing in other areas, primarily the hospitality space where, in order to increase customer activity on their proprietary sites, airlines and hotel brands are becoming increasingly restrictive on partnering with third parties and opting to build some of those capabilities in-house. It will be interesting to see if, in 5 years, this trend continues or begins to reverse.
Great post! I think this is a super interesting area for larger more traditional banks to explore in an era of fintech, but I would be concerned about getting ahead of regulations. I worry about who is liable for any glitches or hacks that could arise from a product over which a bank does not have full control.
Thanks for the great sharing! Really like how you use Apple store as a comparison to Capital One’s platform, and totally agree with your saying on Capital One need to invest more to foster the environment to encourage development on their platform, and on they need to make it easier for customers to compare different developments. I think open platform can play a really effective and important role when the industry knows the direction, but doesn’t know the destination and the path toward it. Especially in the more conservative industry, banking, open platform can be critical to bring out innovation and to figure out the potentials.
As for the incentive question you raised, I think it really depends on the stage of the platform. If it’s still at the stage trying to encourage ideas and developments, it might make more sense to keep it free to the developers. However, if Capital One realizes that the end users are annoyed by the noise on the platform and found it difficult to find the useful apps, then it might be a better idea to charge developers to have a better control over the overall quality.
I don´t have much background knowledge into the limitations and control that can be configured in an API when making it open. I started reading this article because i felt reluctant at first about the idea of using open innovation for banking, being one of the industries where security is needed the most. After reading some of the initiatives, that i relate more to peripheral services around the baking platform I completely changed my mind and appreciated the value of their initiative.
With my limited understanding i’d say that at the beginning not much limits are needed, but as time goes by and more and more ideas and apps appear, there needs to be some sort of moderation given the importance of “no errors” and security in the industry.