What is a Fintech Application Programming Interface (API)?

June 4th, 2022

There are several different types of integrations that financial service providers use to allow you to connect your internal systems to theirs. And there are many ways that you can use these connections to automate your messaging, instructions and reporting. Read on to find out more.

First things first, an Application Programming Interface (API) is a computing interface which defines interactions between multiple software intermediaries. It defines the kind of calls or requests that can be made, how to make them, the data formats that should be used and the conventions to follow.

APIs are flexible. They can be entirely custom, specific to a component, or can be designed based on an industry-standard to ensure interoperability.

Most financial services APIs are currently custom architected, but industry standardisation is underway driven by not-for-profit collectives such as the Banking Industry Architecture Network (BIAN) or the regulators in relevant jurisdictions (PSD2 being an example of a more mature one).

APIs are transforming financial services for the better, but progress has only just begun and that’s why you’ll often hear the phrase “Fintech is only 1% finished”. But it’s possible that APIs will end up eating financial services as we know them today, allowing for a revolution in both what we consume, and how we consume it.

APIs and the Xaas

APIs have also helped to spring up their own industry discipline type, the XaaS. Anything as a Service (XaaS), describes a general category of services related to cloud computing and remote access. It recognises the vast number of products, tools, and technologies that are now delivered to users as a service over the internet.

Particularly, Banking-as-a-Service (BaaS), where firms build a technology layer over traditional financial service products and expose the functionality in a more intuitive and accessible fashion. This XaaS connective layer is transforming the industry from hard to connect and stand-alone services into public APIs. They are easy to 'talk to' and open up a whole new world of possibility in terms of real-time interactions with financial service providers.

Specialist service providers emerge

The traditional financial services stack, usually soldered together within a large bank, has been unbundled into separate products with one or a few specialist firm/s hyper-focussing on amplifying the specific product or service. Customers can access these firms via customer portal or app and via each firm’s own public APIs.

What the addition of public APIs is allowing these specialists to achieve is their own version of the sellotaping together of products and services and to create a mashup of a banking stack.

The difference now is that you can pick the best in class provider of each service to combine, and those providers are generally open for any business to consume from start-up to enterprise.

What are Open Banking APIs?

Open Banking APIs were mandated by the European parliament to 'promote the development and use of innovative online and mobile payments'. PSD2 requires all banks and PSPs to offer 'open' APIs. The 'open' in this case means access by third parties to certain information the bank holds about an account holder (for example spending history) and to perform certain actions and procedures on the account holder’s behalf such as payment initiation.

Open Banking APIs currently have limited use cases but this is rapidly changing. If you imagine the financial services stack as an iceberg, Open Banking is the bit bobbing above the surface.

What are financial APIs?

Financial APIs connect two or more applications to exchange financial data in a bidirectional manner. It enables software programs to communicate with each other through protocols and tools called Application Programming Interfaces (APIs). Financial APIs are designed to integrate a financial institution's core banking platform with third-party data networks or applications.

Through financial API integrations, trusted third parties such as financial technology applications, mortgage or lenders, or other financial institutions can gain safe and secure consumer-permissioned access to account information, including account balances, and transaction history. This access can be used to develop innovative, data-driven financial solutions that can bring significant benefits to both the financial institution and the end-users.

What Are the Benefits of Using APIs in Fintech & Banking?

APIs offer a wide range of benefits to fintech and banking companies. Here are three main ones which could be achieved with our platform:

Accelerated Time-to-Market

By using APIs, businesses can accelerate the development and deployment of new products and services. APIs provide a standardized way for different applications to communicate with each other, enabling businesses to integrate different systems and services quickly. This can help reduce the time, cost and resources required to develop new products and services, enabling businesses to bring them to market faster.

Reduced Development Costs

Using fintech APIs can also reduce development costs as it eliminates the need for developers to create every feature from scratch. This means that the development team can focus on building the core features of the application, rather than spending time on features that can be easily integrated through an API. Which made possible through our platform where we have pre-built standart API integrations to different partners.

Secure Data Exchange

Finance APIs play a critical role in facilitating the secure exchange of financial data between different applications. These APIs leverage authentication protocols and encryption to ensure that only authorized parties have access to the data, thereby protecting sensitive financial information from potential breaches and unauthorized access.

Closing remarks

Navigating the complex sea of financial services requires a much deeper understanding of technologies old and new. To offer the full tide of banking solutions, one must embrace a whole host of disparate and custom APIs (and other connection methods) that exist underneath the waterline. It is these integrations that will allow access to the heavy lifting financial operations that may go on to create greater industry innovation.

APIs are not the only option. There remains three other popular and incumbent ways to connect to financial service providers.

To find out more about these, and explore which approach could work best for your fintech, book a slot to speak to one of our experts.

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