How does the fintech sector use APIs?
And, what does the future hold for the banking business? The cutting-edge developments in the industry are coming via technology, which is being harnessed to improve the products and services offered to customers. We take a glimpse at the future via ten of the hottest APIs in the sector right now.
Just like in the music industry at the start of the millennium, multiple platforms are now vying to change the financial industry forever. Now, as then, the overhaul is being driven by efforts to reduce costs associated with business processes. Evidence of this is the growing use of the internet to perform tasks that just a few years ago were only possible in-branch.
One concept that shot to fame in the 2000s was that of the peer-to-peer (P2P) network. Instead of centralizing data on a server to which clients send requests (like your browser sending requests to the server hosting the website containing this very article), said architecture is based on a decentralized network, with each computer operating both as client and server. Back then the idea gained notoriety as a means of file sharing. It has now found a new calling in currency exchange. Orders to buy and sell currencies are distributed among clients, with certain orders canceling out others (e.g. an order to buy dollars would be canceled by a future sale from another client). As a result, startups such as TransferWise have been able to do away with intermediaries and thus cut service costs. What's different now, compared to what we saw happen to record companies, is that said evolution of traditional services can easily be adopted by the industry itself. The TransferWise API, part of the OpenApi initiative aimed at promoting the use of tools to guarantee open and modular APIs that are independent of providers, has allowed some virtual banks to easily incorporate the service.
P2P platforms are also becoming popular in lending. LendingClub is the hottest such platform at present, offering an API to perform searches, execute orders, monitor loans and configure lending portfolios as an investment.
Addepar provides investment management services, and since 2016 has offered a proprietary API: a solution designed to provide consultancy to medium net worth groups. The application can be incorporated into Salesforce, one of the world's most popular CRMs, and allows users to aggregate and display key portfolio management data.
The introduction of PSD2 regulations has opened the door to a new means of accessing data, one that is set to materialize in the near future and drive competition in the financial sector.
Access to data
We call this market feed, an area in which Xignite offers a catalog of more than 43 different APIs to provide centralized access to most of the world's organized markets. In terms of the enormous volumes of data generated in banking operations, and the subsequent challenge of managing the same, banking data aggregation is a significant new service, with Yodlee's RESTful API offering powerful personal finance management capabilities to support automatic decision-making. Aimed at business users, BBVA PayStats details consumer patterns confined to a specific ZIP Code, via analysis of the bank's aggregated data.
Competition is also on the rise in the payments sector. On 31 January of this year eBay announced that by 2020 it would replace PayPal with Adyen, a comprehensive payment infrastructure that factors in a range of preferences in each country to create a complete API (supporting RestFul, SOAP and web form), while also connecting with the majority of said services.
Regulation represents yet more fertile ground for fintech players, specifically those known as regtech. These are varied in terms of their areas of focus, including players aimed at driving compliance with KYC (Know Your Client) regulations. These APIs save users time by preventing repeated form filling or harnessing biometric identification systems. In 2016 BBVA announced that new customers would be able to register instantly using a selfie, while in January of this year we heard that BBVA would support user authentication via iris scanning. Such trends have seen the emergence of start-ups such as Trulioo, which offers an API that can verify data entered by potential customers via a simple JSON interchange.
White label brands operate here too
None of these examples would be possible without APIs. We would therefore be remiss if we were not to mention SynapseFI, a company that provides white label APIs aimed at banks. The company's future plans promise increasingly sophisticated products, such as analysis of behavioral patterns to enhance credit card features.
The potential of harnessing such technology can be illustrated by two examples that, unlike the above, might be considered disruptive rather than evolutionary.
The first we owe to bunq, a mobile bank. Bunq's decision to open its APIs to customers has helped to generate parallel products for use in financial management, desktop applications, hubs and triggers, thanks to the inclusion of decision tree service design based on specific conditions (if x happens, execute y), such as IFTTT or Zapier.
The second example is decentralized applications. This represents a paradigm shift, in which applications are executed via a P2P network using smart contracts: contracts that self-execute once the agreed conditions are in place, with contracts secured in a blockchain. For example, a hotel room card reader might connect to an API to verify the user's credentials and report successful room access. Said information would self-execute an API call to complete the contractually agreed payment. However, the difficulty in such a process is how to secure data from said APIs to store them in blockchains. The solution is provided by oraclize, which already boasts several decentralized applications.
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