APIs are the new GUIs and why that should matter to you…

Felt compelled to write about a podcast I just listened to because it spoke so directly to what we’re doing at ForMotiv that I almost pulled over to take notes. 

It was an episode of Invest Like The Best with Eric Vishria, a general partner at Benchmark Capital titled, “The Past, Present, and Future of SaaS and Software.” 

In it, Eric goes deep into the evolution of the SaaS business model, the rise of the Graphical User Interface (GUI), and the new innovations businesses are seeing as a result of the new API economy. I’m going to summarize some of his points below, but would highly recommend listening to the whole thing. 

We write about the Digital Transformation and its impact on financial services quite a bit and Eric does a nice job articulating the acceleration of these efforts. 

Just to set the stage and put into perspective how aggressively COVID has accelerated certain industries’ digital transformation efforts, read this…”On Nike’s latest earnings call they announced that 30% of their revenue was done digitally D2C, which was their 2023 goal. That’s one of many examples, but the point is we’ve literally jumped into the future so far as digital transformations are concerned.”

Digital Transformation’s in Banking

While the leap in eCommerce is fascinating, it’s Eric’s thoughts on Banking that really caught my attention. To summarize, if you were to choose a bank even 10 years ago it would likely be one where there were branches close to you, lots of ATMs, etc. Today, if you’re choosing a bank, it’s almost certainly based on which has the best digital experience (leaving the economic side of things out of it). 

As COVID drastically accelerates this paradigm shift to digital, having an amazing user experience has gone from a nice-to-have to, as Eric puts it, “holy shit if we don’t get this right, we’re done.” So this transformation has become existential and is forcing companies to look long and hard at their IT stacks and digital strategies. 

As we discussed in our EBOOK, the SaaS business model revolutionized the adoption and delivery of new technologies and led to incredible efficiencies and extraordinary value for businesses. And as companies continued outsourcing “jobs” to different software services, the main way to utilize these products was through a GUI where a person interacts directly with an interface – think Salesforce or Asana. In these instances, employees are interacting with that software directly. Pricing models tended to be seat-based and scaled based on seat count. Companies were competing based on the best user experience as a human was actually interacting with the screen. 

But in the last 10 years, we’ve seen an explosion in API-first companies such as Twilio and Stripe. This new generation of SaaS companies is competing not on users, but on APIs (application programming interfaces). Think of APIs as software versions of a GUI. 

So instead of a human looking at software, entering data, running reports, etc. – software is interacting with software. And instead of competing on a GUI, companies are competing on API design and ease of consumability. This shift in the competitive frontier is advancing as quickly as the digital transformation itself. 

And now even small companies have developers on staff whose sole purpose is to connect different software products and APIs to build applications. You can think of that as a bunch of different LEGO blocks, each block being a different API or service.

As Eric puts it, “So take Stripe, for instance, which is this unbelievably complicated thing but all it’s really doing is saying “here, dump this code in and you’ll be able to accept payments from anyone in the world.” The job is very simple, but the complexity behind it is huge.” 

It’s no different than what we’re doing with Behavioral Intelligence. 

Accelerated Underwriting with Behavior-as-a-Service (BaaS)

I’m going to refrain from paraphrasing here because I think Eric sums it up neatly… “So think about the loan application process. Not too long ago, a person goes and talks to a loan officer, and the loan officer asks for a bunch of documents. Those documents come in and the loan officer assembles those and makes sure the package goes back and forth with the customer and takes it to the credit committee or whatever to approve it and presents the case manually and there is a discussion and the decision comes down, etc. 

Then people started using software for that. So now we have PDFs, we use DocuSign for things, and we start to assemble documents electronically. Maybe there’s some workflow that helps facilitate, but that’s the gist.

Finally, we have a complete packet and upon hitting submit that packet gets submitted digitally. 

Where we’re working towards and what we’ll inevitably get to is actually this entire thing being encoded in software. So literally you’re clicking a button after the customer supplies some basic information and then the software is going out and talking to your bank, talking to your existing mortgage company, and pulling all of this information together automatically. It will assemble that and maybe do some analysis and then another piece of software or another service is actually looking through that quantified data and actually surfacing, auto-magically, a decision based on historicals and everything else. So it’s surfacing a score, or a decision based on that and surfacing that back to the customer immediately.” 

BINGO. We write about accelerated/automated underwriting and straight-through-processing of claims quite a bit and almost every customer we speak with is heading that direction. 

This has largely already happened in the credit card space. What used to be a multi-week long manual process that was labor-intensive for the customer and the loan officer is now all of a sudden becoming nearly instant. 

And APIs are a driving force of that. 10 years ago there weren’t many lego blocks, but today you can pull almost anything off the shelf, (like behavioral analytics). 

There is a mounting pressure to get better data into the decision-making process because 3rd-party credit history is often incomplete and can only get you so far. It’s literally why we built ForMotiv, to bring a highly predictive behavioral data set to customers in an easy and cost-effective way. 

The Compounding Nature of SaaS

So if you’re looking at a typical company now, there are hundreds of SaaS applications inside that company. 

The next point Eric makes is hugely important and is a focal point of the buy versus build argument. 

“So what happened in the SaaS world is actually now customers are getting, whether they know it or not, continuous upgrades. They’re getting upgrades because the vendor is constantly upgrading their solution, which is mostly unseen, and they’re pushing fixes. So the customer’s product development resource can actually go all-in towards forward-looking development and truly help the customer solve their next problem, as opposed to spending time and energy maintaining non-core products and fixing bugs like they used to. So as this trend continues, if you think about that, you get 30% or so of your engineering back that was spent on maintenance or fixes before. That 30% is now actually looking forward and accelerating progress.” 

This is extremely important for companies to understand. As a business, financial service or otherwise, your sole job is to solve problems for your customers. Building and maintaining solutions that are not core to exactly what you’re offering to your customers are a waste of time, money, and resources. SaaS companies are no different, their sole job is to solve problems for YOU. You’re not buying a single-purchase item, you’re buying a subscription that will constantly evolve to continue helping you, which in turn, gives you more time to help your customers. 

Now here is where it gets really interesting. To quote Warren Buffett, “Compounding is the 8th wonder of the world.” I had never thought of it this way, but that is exactly what is happening with this new SaaS/API model. 

Here’s what Eric said…”If you look at the income statements for a lot of these public companies today, the engineering core is so critical and the operating expense that pays their salaries is really an expense to build something. And if you’re focused on just your core value proposition and outsourcing all the ancillary functions that are also compounding, because they’re run by these great SaaS businesses, you start to, maybe understand a little bit of the wild public market valuations for these things because the efficiency and value of sharing the load across all these companies, all compounding at the same time, is enormous.”

Think of this as earning interest on your interest, which as everyone knows, is the key to exponential gains. 

He goes on to discuss how today’s analytics is taking a page out of the Moneyball playbook. Sound familiar? What can Moneyball teach you about Insurance Analytics?… (Are you starting to realize why I pulled over?) 

Here’s what he had to say…”It’s now a very Moneyball style where you’re replacing the scouting team with a very quantitative data-driven statistical model. You’re now making analytical decisions versus subjective decisions based on data. It’s moving from Mad Men to Moneyball. It happened in marketing, and now it’s making its way across the organization. Look at product management and product development, for example…product managers were smart people who did a few surveys, talked to a few people, came up with something, built it, shipped it, and then had very limited feedback outside of focus groups or whatever. Now, it’s like, okay, we can measure everything. We can actually have metrics. We can understand what users are actually doing in our software. What causes someone to retain? What causes someone to churn. It can all be quantified.” 

Qualified and predicted, if you’re using Behavioral Intelligence. But we couldn’t agree more, Eric. 

At ForMotiv, we will continue focusing solely on our Behavioral Intelligence solution to provide behavior-as-a-service to companies all over the globe so that they can focus on what they do best. Symbiotic relationships are necessary for evolution, and COVIDs impact on digital transformations has accelerated the need to evolve. In today’s environment, you either adapt or die. 

If accelerated underwriting, straight-through-processing for claims, understanding user behavior both on your forms and applications, as well as your internal software, or predicting user intent is of interest – please send me a note at woody@formotiv.com.