APIs at the Center of the Fintech Evolution

Application programming interfaces (APIs) are not new, having evolved over some seventy years, but have gone through a growth spurt in the past decade. Now multiple businesses undergoing a digital transformation, including in banking, finance and payments, depend on APIs to tie disparate systems together.

While its roots trace back to the 1940s during the development of EDSAC, an early computer, the term API did not begin appearing until the 1960s and 1970s, according to Joshua Bloch’s “A Brief, Opinionated History of the API.” 

Originally it served as an interface with end-user-programs. Nowadays, the acronym API is more wide-ranging, encompassing programming languages, software libraries, computer operating systems and computer hardware. Often the term as used today describes web APIs, developed at the turn of the 21st Century, which allow communication between computers joined by the internet. 

Breaking Down API Usage

RapidAPI’s “State of APIs,” suggests almost 70% of developers expect to rely on APIs more in 2022 than ever. The survey also reported over 75% of developers see participating in the API economy as a priority for their organization or plan to prioritize it soon; and revealed it is not just technology companies leveraging APIs for building code, it is literally almost every company. 

Technology companies led the “State of APIs,” survey with 96% of developers planning to use APIs more or the same as in 2021. However, adoption numbers across other industries are significant with developers in financial services (94%), telecommunications (89%) and healthcare (86%) indicating their plans to increase or maintain their usage of APIs.

Internal APIs were still the most common API type that developers reported working on for their organization. However, compared to RapidAPI’s 2020 “Developer Surveys,” more developers in 2021 reported working on partner-facing or third-party APIs.

When it comes to the most common API types, the percentage of developers working on partner-facing APIs was the most noticeable increase across all categories, increasing by almost 10% from 2020 to 2021. This change was more dramatic in financial services, which grew by nearly 135%.

Embedded Finance Pumps Up Fintech’s API Use

The developer-first approach of API-based systems allowed a new fintech generation to flourish. The first wave on focused on unbundling the consumer banking offerings, providing tech to financial institutions, and allowing neobanks to compete against slow-moving incumbents. 

This next upsurge in fintech transformation, embedded finance, now supports the development of an entire generation of new companies targeting specific segments. 

For example, Plaid, a financial services company based in San Francisco Plaid, built a data transfer network that powers fintech and digital finance products, which enables applications to connect with users’ bank accounts.

An area of Plaid’s focus is financial health. In Plaid’s “2021 Consumer Survey on the State of Fintech,” it found the majority of people are not just adopting API-based fintech tools, they are changing the way they view and discuss their finances. In particular, people expect to be able to use technology to improve areas like credit scores and investment portfolios. 

Other fintechs promoting financial health are Stash, designed to help new investors start their wealth journey with thousands of investment options, educational resources, and financial advice; Prosper, a peer-to-peer lending platform and a pioneer in alternative, fintech-based loans; ChangEd, which rounds up spare change on purchases and to pay off student loans; and Tally, which pays off high-interest credit card debt with a low APR line of credit, Digit can help users budget, save, and invest.

Fintech Partnership APIs Provide a Vital Connection

A increasing amount of financial institutions now seek an open-banking/fintech partnership to stay competitive. Many pursue improvement in areas such as mobile banking and payment channels, personal digital assistants, saving and investment tools, fraud mitigation measures, payment processing, and artificial intelligence/machine learning capabilities (including chatbots).

APIs allow developers to shape applications at a quicker pace, and perform a range of critical business functions such as authenticating customer banking account information and interfacing with card and billing networks. In the last few years, APIs have grown from in-house tools to critical elements that link organizations and enable new application and system advancement. 

The ability to add third-party solutions also gives banks and credit unions the ability to choose the best complete experience for both employees and consumers. It is a practical way to supply customers with faster, convenient access to funds, financial resources, and payment vehicles, especially when combating nontraditional financial players.

Open APIs also allow fintech partners and third-party developers to integrate systems more easily on existing core infrastructures. With an open API-friendly infrastructure, financial institutions can also choose products they want to surround their core system. 

An alliance with fintechs allows the financial institution to outsource tech development in a more cost-effective, time sensitive way. A fintech collaboration can also fill tech gaps and prepare new financial products and services in a nimble and quick way.

Fintech Collaborations Benefit Financial Institutions

Credit unions and community banks have an opportunity to counter embedded finance offerings offered by non-traditional sources by partnering with fintech providers. Equipped with an arsenal of financial technology through APIs financial institutions can better satisfy today’s experience-hungry financial services customers. 

Financial institutions can easily benefit from these innovations to deliver a better customer experience and win back market share, particularly in trending areas such of voice recognition, financial information, machine learning, payment strategies and digitalization. 

Third-party APIs allows developers to bring their applications more efficiently to market and benefit from partnerships that already have access to ready-made solutions. Another advantage is third-party APIs generally work better and provide more flexibility than internally built APIs. Third-party API developers have more volume and access to a larger data set that creates significant network results.

NXTsoft’s OmniConnect Platform, which utilizes cutting-edge cloud technology to securely connect fintech solutions to financial institutions, ensures that its clients have safe and reliable integration, and is an open banking marketplace for all API needs. NXTsoft has connectors built for as many as 40 different banking core accounting systems including systems from Fiserv, Jack Henry and FIS, with many of them requiring connectivity to multi-core versions.

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