Fintech APIs: Symbol of the Fintech Revolution

The financial industry is evolving towards a network of products and services. The trend started by business abilities and client needs is driven by technology and catalyzed by regulations. Why have APIs turned into the symbol of the fintech revolution? What are the API strategies that help young organizations to disrupt the sector?

The design of Modern software is based on modularity. Applications are interconnected with numerous services. Every node can be plugged in or out of the system. These modules utilize application programming interfaces (APIs) to communicate with one another safely and conveniently. Fintech News

API used to be a tech term, however recently it has taken over the lingo of strategic management. Consultants are discussing the “API economy” where businesses and clients interact in a similar way to applications and services.

The pressure from retail customers for an effortless, ideally designed, and enjoyable digital experience, like the ones delivered by technology organizations, forces traditional organizations from the financial sector to enhance by opening their ecosystems to startup companies.

As per the report presented by Eurostat, 51% of European adults use online banking. Two-thirds of clients worldwide would share more information with banks in return for new advantages, 71% would utilize fully computer-generated support for banking, and 40% of Gen Y respondents would consider banking from Google or Amazon, as presented by an Accenture study.

Open banking

In the year 2018, two pieces of legislation entered into force. The Second Payment Services Directive (PSD2) and Open Banking initiative of the U.K. Both of these newly introduced rules that promote API strategies in the financial sector. Companies were obliged to share data of customers with regulated third-parties if the customer expressed a required consent.

This developed an environment for open banking. Boston Consulting Group estimates that the trend has the potential to add to or dissolve revenues of retail-banking by 15% to 25%. Insurance, Banks, and investment institutions have to adjust. The best solution is building ecosystems with the utilization of Fintech APIs.

Open banking permits startups to access the most desired resource that is customer data. No surprise 94% of fintech considers it an opportunity. Startups can utilize customer data to work creatively to meet the sophisticated customer needs, while banks can provide them with an API platform to work on. It is a win-win situation.

Winning groups of strategies

Banks can concentrate on discovering customer journeys in the key segments, recognize what is wrong, and how to fix it. They can also experiment with new distribution channels and products. The right API strategy is the best method to achieve each of these goals.

Boston Consulting Group analysts have showcased three winning open banking strategies:

Reinforcing the core,

Creating a new distribution channel,

Launching innovative ventures.

What all three attitudes share in common is that they attract the best fintech ideas and talent. To stay competitive, financial institutions need to be a “partner of choice.” They have to work on their own culture and give business and technical fundamentals for cooperation with the best. Banks need to establish a hierarchy of the APIs they want to build first, and which partners they have to engage in building their ecosystem.

It all starts with recognizing the right use cases.

Financial establishments launch their own developer portals to cooperate with external software developers. Recently, ING introduced one in May 2018 with an API as the key element.

API enables financial organizations to experiment with different business models and product development processes. The ecosystem in large part remains outside of the core organizational structure, which needs to stay relatively conservative to meet stringent security and regulatory requirements.

Retail banks must embrace open banking, but at the same time “most banks remain stuck in a tactical mindset focused on compliance and on fending off the risk of disintermediation”, said the authors of the recent Boston Consulting Group’s report.

Now, let’s have a look at the most promising fintech APIs strategies.

Here is a list of most interesting strategies in Fintech AIPs

• Reinventing the traditional online business – MoneySuperMarket

MoneySuperMarket is an example of a startup that has recently pivoted as a mature public listed company. MoneySuperMarket is a dominating price comparison site in the United Kingdom. Thanks to embracing the API economy, they were able to emerge into a direct online distributor of financial products.

• Building your own open banking ventures – ING

ING has embraced the strategy of launching various independent ventures that would concentrate on building new captivating products, which would be later integrated through an API. This way, three successful products were developed, a mobile wallet Payconiq, a personal finance management aggregator Yolt, and a financial services aggregator for SMEs.

By launching their own open banking ventures, ING not only introduced the culture of API to their own institution but also learned how to interact with external developers through an API-centered developer portal.

• We’ll process the data for you – Tink and Plaid

Tink provides an API for data collection and analytics that empower bank data to drive operations and services. The Swedish startup permits banks to connect to their account aggregation, personal finance management services, and payment initiation, and provide the customers with a new experience.

The apps Tink offers can be effortlessly developed with the use of the API. Swedish SBAB utilized Tink to launch The Mortgage Match, comparing their existing mortgage with the offer of the banks. ABN AMRO could launch a beta of Grip application personal finance manager within 90 days from signing a contract.

Plaid also has a similar strategy. Recently, the US data aggregator has partnered with JPMorgan Chase. Plaid will give the customers of the bank, access to financial applications connected with the bank via API. This will assist customers to use popular financial apps to make smarter decisions with their money while giving them control over how their data is accessed and utilized.

• Aiming at the platform – TrueLayer & BBVA API Market

In the software services market worldwide, the winner takes all. Generally, it is the platform provider. Banco Bilbao Vizcaya Argentaria was one of the banks that decided to give it a try as it launched the API Market of BBVA. The platform was developed specifically with the necessities of the bank’s external and internal developers in mind. It offers fintech APIs, tools, and other services that make it easier for developers to ally with the bank in commercial opportunities.

There are fintech startups that have a similar strategy in their minds. Founded in 2016, TrueLayer was one of the first British organization authorized through the Open Banking program. The goal of Fintech is to become the leading provider of financial APIs. They are developing a platform cooperating with major banks such as HSBC Group, Barclays, Santander, Lloyds Group, and RBS and fintech firms, like Anorak, Zopa, ClearsScore, Canopy, CreditLadder, Plum, BitBond, and Emma.

• Payment infrastructure for fintech – Marqeta

The US-based Marqueta is building an open-API platform that empowers businesses to develop their own payment solutions and issue their own cards. They cooperate with other fintech companies, such as Finance It, Acima, Progressive Leasing, Lendr, and Payability joined Kabbage, Affirm, and Klarna.

They put a great effort to make the Marqeta API easy-to-use. The API utilizes objects to represent various concepts. A payment card is represented by a card object and a cardholder is represented by a customer object. You make a new object, such as a card or client, by making a call to the appropriate API endpoint.

Also, Marqeta API offers a test sandbox environment, where customers can make the objects required to conduct financial transactions and then simulate transactions utilizing those objects.

• Just pay with us – Adyen, Stripe, and Currencycloud

Fintech APIs make it exceptionally easy for payment services providers for an e-commerce business to expand. Companies like Adyen or Stripe can focus on optimizing both the customer experience and also the use of data by businesses.

Adyen offers a web-based Terminal API that can operate behind any POS (point-of-sale) system. The introduction of open banking and the PSD 2 directive end up being a great opportunity for the development of their services.

The London-based Currencycloud, a worldwide payment platform that aims to expel all the complexity out of the process. They consider their API as the building blocks for the next universal payment innovation, such as the automation of the end-to-end payment processes.

Conclusion

An interconnected network of services is the future of financial services, software development, and more. The concept of fintech APIs has encountered a perfect storm as the technology, the business conditions, and regulations appear to encourage the safe sharing of customer data in order to deliver better services.

The old big players in investment, banking, and insurance are being disrupted by agile startups focused on building exceptional customer experience and entering the system at various levels thanks to APIs.

API technology is becoming an integral part of Fintech, by offering future-proof solutions for the entire finance sector. Fintech APIs are forever changing the way payments happen. It has become a part of the digital revolution and can go hand-in-hand forever with Fintech and transfer funds, provide the details of monthly expenses, or discover the best premium for vehicle insurance.