Financial services are changing rapidly these days. The use of technology in finance or fintech has led to many benefits such as data protection, fewer errors in transactions, and the better customer experience. This has changed the way finance businesses operate. Companies are now competing to get customer attention by features such as faster transactions, more affordable fees, and open banking, among other measures. To achieve many of these things, they are relying on APIs – especially the banking industry.
APIs are programming interfaces that allow communication between different software. Nowadays, APIs can perform elaborate tasks that used to require people to go to banks or ATMs. APIs are part of a concept called Banking as a Service (BaaS). They allow fintech companies and banks to work together to provide services to customers.
Fintech companies grow their business by securing banking services licenses from different banks and creating their own software services. There are many examples of fintech APIs, such as those from Paypal, Square, Braintree, and Venmo.
There are many examples of how APIs can successfully help with many aspects of banking and fintech. Below are some examples.
Investment and portfolio
One prominent example of a fintech use case is about investing and investment management. APIs allow financial advisors, banks, and traders to accurately gather client data. This helps them understand a client’s financial situation and advise them accordingly.
Regtech and Suptech
APIs allow financial lenders and banks to confirm the identity and financial information of the clients they handle. Also, there are many rules and regulations related to banking, and the fines for non-compliance can be very severe.
Regtech understands which laws have changed since the last reform and which new laws are applied to your business and alert you about that. It does so through the use of AI, and natural language processing (NLP). Regtech and Suptech also help banks on issues such as data management, tax management, and reporting solutions.
One of the most significant advantages of APIs is that it increases the number of ways small and medium-sized businesses can accept payments. The ease with which businesses are able to accept payments, coupled with the simplicity and security of API services, makes them a necessity for startups looking to receive investments. Also, they allow companies to accept global payments
APIs allow currency exchange through Peer to Peer (P2P) transactions. Through APIs, borrowers and money lenders can exchange currency without the need for intermediaries. The overall process of issuing a loan is simplified, and the cost involved is also reduced.
Benefits Of Using APIs
There are many benefits of APIs that help fintech apps and banks. Some of them are:
The biggest advantage of API is that retailers and small businesses can engage in real-time banking without going to their bank. They can access their bank information, transfer money, monitor payments, and create an up-to-date information profile for their financial situation. Access to banking information helps business owners in their decision making.
Access to data by all parties involved
Only banks used to have data regarding the financial history of a customer. That made it difficult for vendors to accurately assess the financial situation before commencing a deal.
Banking APIs allow one-touch information that is easily shareable. If you’re a third party that wants to access a firm’s banking records and financial information to decide if you want to invest in them, you can easily do that. Access to data also helps secure loans from government and non-governmental entities, as borrowers can freely share their financial and credit history.
APIs allow access to historical data, helping the businesses understand their billing and spendings and allowing them greater control over their expenses. This enables them to understand market trends.
Clients can also use billing APIs to bill regular customers without manual intervention, hence automating the whole process. This also helps in identifying issues and catching mismatches that may have occurred due to human errors. All this leads to better customer engagement and allows clients to increase their digital revenue.
Through APIs, banks can now offer a range of services to their customers without incurring additional costs to themselves. They can integrate their services with other software, allowing more customers to use them without extra hassle and cost. They can also develop customized plans for different customers as per their needs instead of standard plans.
And since there are so many players in the market, with many of them offering similar kinds of services, this free-market environment gives customers the power to choose whichever service they want.
Future of API-driven banking
APIs are valuable assets as they allow banks to extend their services to customers, and help clients get the information they need. To actually build a future where banking is available to everyone, APIs need to have easy integration so that they can be used with a variety of software. Easy integration will also allow consistent sharing of data between different software solutions while allowing government and financial firms to apply security and governance policies.
The banks should also have adequate IT infrastructure to support the APIs to get a connected, fast, and secure solution. Mobile software also needs to be considered for demographics that don’t have access to conventional methods.
By doing this, banks will become the one-stop-shop for all financial needs. They will provide innovative solutions to customers, along with handling their money. Banks can also partner with fintech companies to create and distribute APIs to expand their capabilities and enable open banking. That collaboration will bring new functionality to market, enhance existing services, and make things easier for the end-user.