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How Does the Fintech Sector Use APIs?

banking api

Open Banking has an influence over financial institutions throughout the world, and it is owing to the popularity of open banking startups. It is a system in which institutions and banks have open Application Programming Interfaces (APIs) so that third parties can have access to their financial database. This creates new applications and services, making operations transparent for account holders.APIs are just a part of the entire open banking system. As open banking became widely accepted, fintech companies started to devise ways in which banking APIs could serve the finance sector. This is one of the most influential trends in the Fintech arm since 2021.Therefore, let’s see how the fintech sector uses financial APIs.

What is a Banking API?

APIs are a set of codes and protocols that determine how different software applications and components communicate with each other. Due to the popular usage of open banking, APIs are being rapidly utilized in the fintech industry to command third-party service providers. APIs are also used to connect developers with payment networks besides showing billing details on a bank’s website. They have become significantly important when it comes to Banking-as-a-service (BaaS), which is itself a part of open banking.

How are APIs Advantageous for the Fintech Sector?

Enhance Cost-Effectiveness:When banks offer a variety of services for the benefit of users, it becomes expensive for the banking institutions. Banking APIs can be beneficial in this. Open API development comes to the rescue in this event as now users can enjoy multiple services through the integration of different applications. For example, a user can now save his/her banking information in bookkeeping software by a third party that keeps a record of every information important about each transaction and other activities in a single place.Encourage Data Sharing for an Enhanced ExperienceInitially, banks didn’t allow the sharing of data so freely, and they were choosy about sharing the information. However, the situation started changing, first in the European Union and then in the entire world. Users who have control over their data can demand banks allow them to share their data with the required third-party service. It is done through banking APIs. This is one way in which APIs are utilized in fintech.APIs are Future-ProofThere has been rapid progress in fintech app development. So there are low chances of API getting obsolete in the banking industry. Numerous fintech startups are flourishing every day, and it is a sign that there is plenty of customer demand for improved services while integrating APIs. Results on ProgrammableWeb reveal that 1956 financial APIs are present, of which 290 were listed in the first half of 2019.More Competition Means More ServicesAs APIs have started to emerge, the competition has been increasing in the market, and this is benefitting the customers. Because of this, the prices of the financial industry are falling in connection with the assortment of services that are offered. For example, financial services aggregators can be used by users for checking which banks and institutions offer the best facilities. They can also access facilities which were primarily available only in branches.Quick and Productive OperationsBy adopting a methodology empowered by banking API, clients can be served quickly and effectively and offer a smooth experience. APIs allow clients to monitor banking transactions through mobile banking, wallet services, and online banking on their devices from anywhere, anytime they want to, without having to worry about security. Therefore, clients do not need to physically visit banks for making transactions and can save important time.Almost 90 percent of transactions occur outside the bank these days, which saves costs and resources and helps in improving their financial condition.Increase in Product PortfolioFinancial APIs are extending their scope of products by offering complementary products such as products co-created with partners or insurance, innovation firms, and financial tech. The flexibility of APIs allows this versatile portfolio growth. These APIs interconnect with different frameworks and allow exchange with industries and businesses.APIs allow banks to provide non-financial products along with financial ones. For example, NBD, which is owned by the Dubai Government, empowers its cardholders to get access to entertainment, retail items, hospitality, and much more through the API-driven eCommerce businesses.

Uses of Open Banking APIs

  • Financial APIs help in the price comparison.
  • Financial institutions have produced numerous peer-to-peer payment applications that offer multiple services.
  • It allows investment management. It was a difficult task to collect information about the client for catering to a customized solution before open banking was introduced. But nowadays, investment management APIs can have access to information of customers for estimating the client’s assets and resources.
  • Enhancing open banking approaches. Various individual ventures are being launched to manufacture new products, and they are gradually integrated with APIs.
  • Establishing API market platforms. Various API tools are designed to help developers establish communication between banks and commercial opportunities.
  • Offers white-label management services and easy gaming activities in connection with gaming organizations.

Future Potential of APIs in the Fintech Industry

The scope of APIs in the fintech industry seems promising when reflecting on the utilization and presenting reception of banking APIs in the integration of APIs between communities and businesses. Third-party infrastructures host these API integrations.For example, financial APIs may assist banks to connect with e-commerce websites, making the process of online payments more convenient. Additionally, they may connect with banks and physical stores for offering lending and financing options at POS locations. People taking interest in API financial solutions should choose a proper fintech software development company and solution provider. DigitalAPICraft has experience in working with several fintech business models and devising and simplifying API integration platforms. We help in integrating APIs with businesses seamlessly.