There are several different types of integrations that financial service providers use to allow you to connect your internal systems to theirs. And there are many ways that you can use these connections to automate your messaging, instructions and reporting. However, there has been a recent explosion of APIs in Fintech.
So, what is an API? And can they really transform financial services for the better?
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APIs – The Basics
An Application Programming Interface (API) is a computing interface which defines interactions between multiple software intermediaries. It defines the kind of calls or requests that can be made, how to make them, the data formats that should be used and the conventions to follow.
APIs are flexible. They can be entirely custom, specific to a component, or can be designed based on an industry-standard to ensure interoperability.
How APIs are used in finance
Most financial services APIs are currently custom architected, but industry standardisation is underway driven by not-for-profit collectives such as the Banking Industry Architecture Network (BIAN) or the regulators in relevant jurisdictions (PSD2 being an example of a more mature one).
APIs are transforming financial services for the better, but progress has only just begun and that’s why you’ll often hear the phrase “Fintech is only 1% finished”. But it’s possible that APIs will end up eating financial services as we know them today, allowing for a revolution in both what we consume, and how we consume it.
APIs and the Xaas
APIs have also helped to spring up their own industry discipline type, the XaaS (As a Service). Particularly, Banking-as-a-service, where firms build a technology layer over traditional financial service products and expose the functionality in a more intuitive and accessible fashion.
This XaaS connective layer is transforming the industry from hard to connect and stand-alone services into public APIs. They are easy to talk to and open up a whole new world of possibility in terms of real-time interactions with financial service providers.
Specialist service providers emerge
The traditional financial services stack, usually soldered together within a large bank, has been unbundled into separate products with one or a few specialist firm/s hyper-focussing, on amplifying the specific product or service. Customers can access these firms via customer portal or app and via each firm’s own public APIs.
What the addition of public APIs is allowing these specialists to achieve is their own version of the sellotaping together of products and services and to create a mashup of a banking stack. The difference now is that you can pick the best in class provider of each service to combine, and those providers are generally open for any business to consume from start-up to enterprise.
What are Open Banking APIs?
Open Banking APIs were mandated by the European parliament to ‘promote the development and use of innovative online and mobile payments’. PSD2 requires all banks and PSPs to offer ‘open’ APIs. The open in this case means access by third parties to certain information the bank holds about an account holder (for example spending history) and to perform certain things on the account holder’s behalf such as initiating payments.
Open Banking APIs currently have limited use cases. If you imagine the financial services stack as an iceberg, Open Banking is the bit bobbing above the surface. Navigating the complex sea of financial services requires a much deeper understanding of technologies old and new. To offer the full tide of banking solutions, one must embrace a whole host of disparate and custom APIs (and other connection methods) that exist underneath the waterline. It is these integrations that will allow access to the heavy lifting financial operations that may go on to create greater industry innovation.
Other types of connections
APIs are not the only option. There remains three other popular and incumbent ways to connect to financial service providers.
To find out more about these, and explore which approach could work best for you, download our free White Paper: Connectivity in Fintech
Need simpler Fintech integrations?
Integrated Finance helps build, expand and manage financial infrastructures, quickly, easily and at a low cost. The company launched in October 2020 with the introduction of both IF CONNECT and IF CORE, the first time that any business has focused on simplifying the integration process in the Fintech market.
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