Have you ever wondered how much of a difference APIs make in banking? A few decades ago, the banking industry was very restrictive: customers often spent hours in lines for most financial tasks and collaboration between financial and non-financial institutions was rare, limiting available services and offerings.
But what has happened since then? Fintech APIs have drastically changed how banks operate by allowing seamless software interactions. This era of connectivity has brought new convenience and expanded financial possibilities, saving time for both clients and banks. So, when you check your in-app bank accounts or transfer funds with just a few clicks, remember to thank banking APIs.
And what’s unsurprising, yet still interesting, is that this fintech API development trend is growing. Forbes reports that since 2019, 65% of financial institutions have entered into at least one fintech partnership, and 35% have invested in a fintech startup.
In this article, our Inoxoft team will cover the basics of fintech APIs, discuss their pros and cons, compare different types, and share integration tips based on our experience.
- Who Uses Fintech APIs and Why?
- Why Fintech Is Important for Financial Institutions
- How Do Fintech APIs Work?
- Fintech API Use Cases
- What Types of Fintech APIs Are Used for Application Development?
- Fintech APIs Comparison
-
Advantages of Using Fintech APIsÂ
- Cons and Risks of Fintech APIs
- How to Choose the Best Fintech API for Your Business?
- Inoxoft’s Experience in Working with Fintech API
- Conclusion
Who Uses Fintech APIs and Why?
API usage in fintech is popular among various stakeholders within the industry for diverse purposes. Here’s a brief overview of the areas in fintech where fintech APIs are commonly utilized:
Blockchain
While interacting with blockchain in fintech, fintech APIs enable secure and transparent transactions, smart contract functionality, and decentralized applications (dApps) development.
Banks
Account management, transaction processing, customer authentication, and data retrieval — APIs facilitate seamless integration with third-party applications and create innovative online banking services and solutions for a better user experience.
Investments
By providing access to real-time market data, portfolio management tools, trade execution, and risk assessment capabilities, fintech APIs enable investment and fintech companies to offer comprehensive and efficient services to their clients.
Payment processing
Fintech APIs can facilitate secure and efficient transactions since they enable integration with various payment gateways, e-wallets, and digital payment solutions. It enhances the speed and convenience of financial transactions.
Peer-to-peer (P2P) programs
Financial technology APIs provide various functionalities: borrower verification, credit scoring, fund transfers, and investor management, enabling efficient and transparent lending or investment processes.
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Why Fintech Is Important for Financial Institutions
Mobile banking, increased data availability, advanced analytics, and decentralized access are transforming how banks and customers interact, and fintech plays a key role in this transformation. Fortune Business Insights reports that the global fintech market was valued at $US 294.74 billion in 2023 and is projected to reach $US 340.10 billion in 2024.
At its core, fintech simplifies financial services into easier-to-use, individual offerings that can operate more efficiently and reduce transaction costs. However, these advantages represent only a fraction of the benefits fintech brings to banks and financial institutions.
Several key trends drive the industry’s interest in adopting fintech solutions:
Open banking
Open banking, also called “open bank data,” is a system where third-party financial service providers can access your banking, transactions, and other information from banks and financial institutions using APIs. This allows different institutions to share account information and data, benefiting consumers, banks, and service providers.
It’s interesting to note that the use of mobile banking API also highlights the popularity of open banking in various regions. In Europe (excluding the UK), this is especially clear, as almost half of the world’s API products come from there. The report states that Europe has 2,537 API products out of 5,564 worldwide, accounting for 46%.
Automating Know Your Customer (KYC) and Anti-Money Laundering (AML) checks
Recent findings from a global survey by Regula and Sapio Research show that one out of every four banks experienced more than 100 identity fraud incidents, with a median financial loss exceeding US$310,000. That’s why banks are increasingly showing interest in automated identity check processes, also known as Know Your Customer (KYC), and Anti-Money Laundering (AML) initiatives.
In brief, the automation technology used for these purposes gathers, verifies, and analyzes customer information to meet regulatory standards and assess risk levels, resulting in simpler customer onboarding and due diligence procedures.
What makes automation possible are advanced technologies like Artificial Intelligence (AI), Machine Learning (ML), Optical Character Recognition (OCR), and data analytics. Paired with banking API integration these technologies allow for real-time sharing and verification of data, improving security and compliance.
Democratization of financial services
As the name implies, democratization aims to make sure that ALL customers have access to ALL available financial services. While many of them are already quite accessible, research indicates that in the USA alone, over 70 million people are excluded from the banking system due to the high costs associated with customer services.
As automation and technology have progressed, the cost of most offerings has dropped considerably, making the traditional business model outdated. Fintech companies are playing a significant role in this digital transformation.
With the integration of data and AI, APIs, digitalized transactions, and transparent monitoring, everyone should soon have the opportunity to partake in the upcoming industry revolution. Of course, significant efforts will still be needed to ensure that elements such as legitimacy, trust, safety, privacy, and integrity of the financial system are upheld.
Read more: How to build a neobank?
Personalized financial products
Users love how services like Spotify and Netflix personalize their experiences. Now, they expect the same personalization in all their digital interactions, including with their banks. In fact, 72% of customers find personalized product offers more valuable, and 65% believe banks should help them discover suitable products.
Hyper-personalization in banking means adjusting financial services to meet users’ specific needs in real time. Banks do this by using the data users generate daily, analyzing their behavior, and utilizing available technology.
In this context, APIs help banks and financial services offer a unique customer experience. For example, a fintech app might connect with a bank to provide users with updates on their spending, financial advice, or access to innovative products.
How Do Fintech APIs Work?
To better understand the concept of APIs, let’s examine a practical example. Imagine you’re using a personal finance app and want to automatically sync all your bank transactions. Let’s break down this process step-by-step:
- The user clicks “Connect your bank account” in the app.
- The fintech API establishes a connection and transmits the request.
- The API communicates with a specific endpoint on the bank’s server to initiate authentication.
- The user provides authentication details via the app.
- The API securely forwards the information to the bank’s server for verification.
- The bank’s server verifies the details against its database.
- If the details are accurate, the server approves the access request.
That’s how any new financial transaction that occurs in your bank account will be automatically transmitted to the personal finance app.
We can see that APIs establish a clear separation between the application and the third-party system. Through the fintech API platform, personal finance apps and other fintech platforms can seamlessly cooperate with bank accounts, providing users with real-time access to their financial data within the app’s interface.
Fintech API Use Cases
It’s time to move from theory to practice. Here are some real-life fintech API examples and use cases.
Personal finance management
Many budgeting apps and robo-advisors use APIs to securely analyze users’ data, giving them a full picture of their financial well-being. With APIs, PFM platforms can offer investment advice, budgeting help, and spending insights, all according to users’ specific needs.
For example, a budgeting app like Mint uses APIs to access customers’ numerous bank accounts, credit cards, and investment history to provide a consolidated view of their finances.
Wealth management
Investment APIs can grant access to financial markets for any person and allow them to buy, sell, and manage stocks, bonds, and other securities. Additionally, ML algorithms use these APIs to develop investment strategies, making wealth management services available to investors at all levels.
Betterment app uses APIs to analyze investors’ performance and automate portfolio rebalancing to optimize returns according to their goals and risk tolerance.
Money transfer
Money transfer technologies are perhaps the most popular application of APIs, allowing payment functions to be seamlessly integrated into apps or software. This way users don’t have to switch to external processors and businesses can automate money-transferring operations.
Services like PayPal use APIs to connect with multiple banks and financial institutions, allowing users to send and receive money instantly, often with lower fees and better exchange rates than traditional banks.
Lending
APIs drive digital lending and credit services by directly connecting lenders with borrowers’ financial information. This means lenders can quickly access important details like employment history, income, and credit scores to understand a borrower’s creditworthiness. Additionally, APIs help with various processes such as loan applications, fund disbursement, repayments, and tracking.
The LendingClub app uses APIs to access applicants’ bank account information, credit history, and other relevant data, making loan approvals faster and simpler.
What Types of Fintech APIs Are Used for Application Development?
There are various available types of APIs in the fintech industry that can enhance its functionality and provide valuable features. Here are some types of APIs commonly used in fintech apps and their potential benefits:
Financial data providers/accumulators
These APIs for fintech make third-party applications easily access bank account and card balance information. These APIs also empower apps to offer financial services to their users. Additionally, major banks provide APIs that grant access to accounts, payments, and security functions.
KYC and RegTech tools
KYC (Know Your Customer) and RegTech (Regulatory Technology) tools are instrumental in ensuring compliance with regulations in various countries, despite the inherent challenges involved. Their integration can significantly contribute to making compliance more manageable for businesses.
Payment processors
Payment processors serve as crucial APIs underpinning fintech and the broader internet economy. These intermediaries accept, validate, and process payments for online transactions. Leading payment processor APIs like Stripe and MangoPay have become integral to facilitating seamless financial transactions.
Security management tools
Such authentication and authorization API for fintech alleviate the burden of implementing security measures from scratch, allowing developers to focus on core functionalities. That includes entering usernames with passwords, tokens or PINs, and biometric verification, where you can leverage native solutions like Apple’s Face ID or the Android Biometric Library — they provide secure and convenient biometric authentication methods: facial recognition or fingerprint scanning to enhance user security.
Investment brokers
Broker APIs function similarly to human brokers by executing asset trades on behalf of users – they handle buying and selling assets in the market, relieving developers from the need to build trading algorithms from scratch. One example of a broker API is Binance, which facilitates trading in cryptocurrencies.
This flexibility allows you to extend investment functionalities to other fintech app types, such as personal finance or digital banking. Whether you aim to provide comprehensive trading capabilities or access to specific market data, broker APIs offer a straightforward solution for enhancing your app with investment-related functionalities.
Fintech APIs Comparison
| API Category | Description | Benefits | Examples |
|
Financial data providers/Accumulators |
Gather and organize financial information from different sources, providing a complete overview of the company’s financial situation. |
1. Simplified financial analysis and decision-making 2. Increased accuracy in managing finances 3. A complete view of financial status |
Plaid, Yodlee, Quovo |
| KYC and RegTech tools | Help businesses verify customer identities and ensure compliance through automation. |
1. Smoother customer onboarding 2. Adherence to regulations like KYC and AML 3. Lower rates of fraud and financial crimes |
Sumsub, Onfido, Jumio |
| Payment processors | Facilitate secure online payments between users and businesses. |
1. Seamless in-app transactions with various payment methods (credit cards, debit cards, e-wallets) 2. Improved security and customer trust 3. Reduced development time and effort |
Stripe, PayPal, Square |
| Security management tools | Provide tools for managing cybersecurity and protecting data from theft. |
1. Improved data security with features like password management and biometric login 2. Early detection of security threats 3. Improves user experience with secure and convenient login methods |
Auth0, Twilio, Okta |
| Investment brokers | Execute trades on behalf of users in various asset classes. |
1. Increased access to investment options through the app 2. Avoid building complex trading algorithms from scratch 3. Personalized investment strategies |
Alpaca, Interactive Brokers, Binance |
Advantages of Using Fintech APIs
Faster development/time to market
One of the most significant pros of API for fintech is the ability to accelerate your software development. With pre-built or open APIs, developers can tap into a wealth of existing functionality and services, and leave aside building everything from scratch. This saves considerable time and effort in coding, testing, and debugging complex functionalities, and allows businesses to bring their solutions to market faster.
Reduction of development costs
Besides shortening the development time, you can save up a valuable budget and resources. Using APIs allows developers to leverage existing functionality and services, eliminating the need to build complex features from scratch. Despite the cost associated with API usage, the overall cost savings achieved through reduced development time and increased efficiency can still make fintech APIs a cost-effective solution for businesses.
Reuse of components
Fintech APIs provide a set of pre-built reusable components that can be easily integrated into different applications — you can utilize them across multiple projects and applications without the need for redevelopment. This reduces the development effort, as developers can build upon the existing functionality provided by the API rather than starting from scratch.
Time/resources to focus on innovations
Businesses can free up their valuable time and resources, and focus on innovation or core areas of their business. Fintech APIs accelerate the web and cloud development process and enhance scalability. As enterprises leverage these APIs, they can quickly scale their operations without substantial investments in infrastructure or additional development efforts.
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Cons and Risks of Fintech APIs
Even though fintech APIs offer numerous advantages, it’s essential to be aware of potential risks associated with their usage. The rapid growth of APIs in recent years has posed challenges for API management tools, leading to concerns about their ability to effectively handle the increasing number of APIs. Here are some cons of fintech APIs:
Security vulnerabilities
Vulnerabilities can arise if API developers do not meticulously follow established fintech API standards. Authorization errors, broken authentication or access control, SQL injections, security misconfiguration, and components with known vulnerabilities are potential exploits that can be introduced if API security practices are not adequately implemented. Developers must prioritize robust security practices, including encryption, authentication mechanisms, and regular security audits.
Dependency on third-party providers
Relying on external providers for critical functionalities might be a significant risk. If the API provider experiences downtime or performance issues or discontinues the service, it can directly impact the functionality of the integrated service. Carefully evaluate the reliability and stability of API providers before integration.
API limitations and updates
API providers may offer specific features or services that meet the needs of most users. Yet, they might not cover all use cases. Plus, updates or changes to the APIs can impact the functionality and compatibility of integrated applications. Businesses must monitor API updates closely, stay informed about any changes, and assess the impact on their existing integrations.
Vendor lock-in
Once you integrate with a specific API, you may face challenges when transitioning to a different provider or modifying its systems. Vendor lock-in can limit flexibility and make adapting to changing needs or exploring new partnerships challenging. Businesses should consider API design strategies that minimize vendor lock-in and provide flexibility for future changes.
How to Choose the Best Fintech API for Your Business?
When choosing an API integration for fintech, several important steps help you make an informed decision:
Identify your business needs
Determine the specific finance software or functionalities you require from an API. Consider whether you need payment processing, account aggregation, risk assessment, identity verification, or other financial services.
Research the market
Explore the fintech API market and identify the options that align with your business needs. Look for APIs that specialize in the areas relevant to your business. Consider the challenges of using API in fintech and factors like reliability, API security, scalability, documentation, and ease of API integration.
Evaluate API support
Reliable API documentation is crucial for seamless integration and API development. Ensure that the API provider offers comprehensive and up-to-date documentation, including sample code and clear explanations.
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Security and compliance
Again, security is important when it comes to financial data. Evaluate the security measures implemented by the API provider, and compliance with relevant data protection regulations (e.g., GDPR, PCI DSS). Consider the reputation and track record of the API provider in terms of security incidents.
Test the API functionality
Before committing to an API, request access to the API testing environment. This will allow you to evaluate the API’s functionality, ease of use, and performance. Test different scenarios and assess whether the API meets your business requirements and provides the desired outcomes.
Check integration options
Evaluate the available integration options and developer resources provided by the API provider. Look for client libraries, SDKs, and code samples that facilitate integration. Consider the programming languages and frameworks supported by the API, as well as any developer communities or forums that can offer assistance.
Seek references
Research reviews, testimonials from other businesses that have used the API you are considering. Ask for feedback from industry experts who may have experience with the API provider to get insights into the API’s performance, reliability, and overall experience of working with the provider.
Inoxoft’s Experience in Working with Fintech API
As a fintech software development company, we know how important APIs are for modern banking systems. In our almost ten years of operation, we’ve gained valuable experience working with a wide range of APIs, including systems for payments, transfers, account information, and many others.
If you’re looking to reap the benefits of API fintech integration but unsure about which APIs suit your business best, we’re here to guide you. Check out our case study to see how Inoxoft can assist you.
Case Study: Trading Automatization Platform Development
Our client is a major player in the currency trading industry, active on the world’s three leading stock exchanges: London, New York, and Tokyo. Despite the company’s substantial experience and influence in the field, its workflow relied heavily on manual processes, which proved inefficient and time-consuming, leading to fewer deals and high customer dissatisfaction rates.
To address this challenge, the client requested an application that could automate the analysis of currency data, price monitoring, and deal arrangement, aiming to replace the labor-intensive manual tasks.
After careful research, Inoxoft developed a web application that automatically creates spreadsheets with the best exchange rate information and lists all the orders for profitable trades according to a specific financial plan.
Our team achieved maximum efficiency by integrating three microservices that analyze data, organize the database, and generate orders according to the trading strategy.
Additionally, we implemented APIs to automatically transfer the orders to the broker, minimizing the time needed for analysis, and leading to higher profits and business growth.
Conclusion
Fintech APIs are quickly becoming popular, mainly because the financial sector has grown a lot in recent years. Traditional banks are now sharing their data with other companies to expand their services, while new fintech startups are leveraging this data to create innovative features and improve customer experiences.
API technology greatly improves the functionality, usability, and scalability of fintech solutions, saving time on development. So, the real question isn’t whether to use an API for your business, but rather which one to choose, how to integrate it, and how to tailor it to fit your needs.
If you don’t want to miss out on this opportunity, we’re here to help. With our fintech expertise, we can guide you through the whole API integration journey.
Ready to talk about your project? Get in touch with us, and we’ll be happy to meet your needs.
Frequently Asked Questions
What are some best practices for using fintech APIs?
If you want to get the most out of fintech APIs while staying secure, you have to focus on strong security practices like encryption and secure authentication first.Â
Secondly, make sure you thoroughly read the API documentation for smooth integration and keep an eye on API versions and updates to prevent disruptions.Â
Also, remember to be mindful of rate limits and ensure your app can handle them properly. Test everything in a sandbox environment before going live, and use monitoring tools to watch over performance and set up alerts for any issues.
Where can I find more information about specific fintech APIs?
For detailed info on fintech APIs, check out the official websites of the fintech companies or API providers. Sites like RapidAPI, ProgrammableWeb, and API Layer have reviews and ratings for various fintech APIs.Â
Additionally, you can join communities on Stack Overflow, Reddit, or specialized fintech forums to get advice from other developers.
How can I manage the risks associated with relying on third-party fintech APIs?
Start by researching and choosing reputable providers with good reviews. Make sure they offer clear Service Level Agreements (SLAs) for uptime, support, and performance.
Then, consider using multiple APIs, as it will help to avoid single points of failure. After that, monitoring is set up to catch and address issues quickly and protect sensitive information with strong data protection measures.Â
How can I ensure compliance with financial regulations when using fintech APIs?
To stay compliant with financial regulations, keep up-to-date with the relevant rules like GDPR and choose APIs from providers that meet such regulations.Â
Use strong data privacy measures to protect personal and financial data. For example, keep detailed logs and audit trails of all transactions and API interactions, and consult legal and compliance experts to make sure your API use meets all necessary standards.
