Fintech is exploding as a market globally, thanks in part to emerging open banking and open finance regulations. Increasingly, banks are required to expose financial capabilities and data via APIs so that third-party providers can use them as resources in their digital products and services.
In this article, you’ll learn about the rise in popularity of APIs within the fintech industry, as well as how to get started offering an API for your own fintech company.
The digital financial services market
Financial services are evolving fast. Customers are increasingly demanding more efficient and personalised services from fintech. By the end of 2020, as many as 1.9 billion individuals worldwide actively used online banking services, and that number is projected to reach 2.5 billion by 2024. People all around the world want to manage their finances digitally.
If you work in a fintech startup, you are probably already using APIs as part of your product chain. With growing open banking regulations worldwide, you can also allow your customers to directly link their bank account to your app, if you have the appropriate accreditation and capabilities in place.
But offering every bank integration through a simple click can be a complex process, as there are limited global standards for banking APIs. Your organisation may need to create an API integration for every bank that has APIs!
Instead, a growing API aggregation platform middleware market has emerged. These platforms allow you to offer bank integrations in your fintech app using one aggregated API that does the heavy lifting of working with each bank out there. These API aggregation platforms often also link to other financial services, such as payment providers and buy now pay later providers, so you can integrate multiple payment and money movement options into your fintech app without the overhead of bespoke integrations. This can help you speed up product development and let you focus on your core mission.
This API aggregation can work for you in two ways: while it may make it easier for you to integrate external financial services into your app, you might also consider making your services available through an API aggregation platform as well. Of course, this would require you to think beyond just offering a mobile app or web-based product. You’ll have to mature your business model to think about how you would provide your fintech services as product APIs.
Benefits of using APIs in the fintech market
It’s easier and faster to build with APIs than from the ground up. Banks and payment companies need APIs to connect with third parties in order to expand their services. Your merchants need to make it easy for their customers to pay using their preferred methods, and consumers want to be able to transfer funds, make purchases, and perform personal banking tasks on the go.
For developers, APIs make creating financial apps and services faster, easier, and more cost-effective than ever before.
Building with APIs leads to faster time-to-market. Companies now understand that most of the functionalities they have to build into their application already exist somewhere via third-party API integrations. If a feature isn’t part of your core business and unique value proposition, it’s often easier to make use of existing API products rather than build your own functionalities.
APIs limit the amount of duplication that occurs when building products and services or when facilitating the value chain across your ecosystem.
While there may be an initial investment in building an API, the product has enormous reuse potential. APIs can be used to create multiple products and services at lower cost. And while using existing APIs may have a consumption or subscription charge, that’s still often much cheaper than building and maintaining your own infrastructure for every functionality you need in a fintech app.
APIs can be shared across lines of business or with trusted external partners. This helps build out ecosystem relationships, which allows you to innovate with partners or across your own business.
Getting started with an API strategy
Fintech APIs are rapidly transforming an industry historically resistant to change. Their increased adoption has resulted in the growth of new apps and services, so it’s important to take a strategic approach when you begin working with them. Before integrating a third-party API, ensure it’s a good match with your business strategy and consider use cases, your customers’ needs, and government regulations.
For an API provider, it’s often better to start small and offer a limited number of APIs to existing partners. This allows you time to build up your understanding of developers’ needs and test your business models. You should consider:
- Why you are opening APIs and who your target API consumers are
- Your pricing strategy and the indirect revenue benefits you expect to generate (such as increased customer acquisition)
- Developer audiences and the documentation and resources they need
Tyk customer Branch is a good example of putting these practices in place. As a US-based home and auto insurance provider, they can bundle their offerings to be integrated directly into third-party services and marketplaces. Branch uses Tyk because they offer GraphQL full API management plus a developer portal, all hosted on its cloud.
Why do you need API Management?
To expose your fintech services as APIs and manage your APIs across multiple cloud environments, you will need an API management tool. The goal of API management is to allow your organisation to monitor the activities of the APIs you use and ensure the needs of the developers and applications using the API are being met.
This may even be reflected in internal development: if you build mobile apps using APIs, you can easily use the API building blocks to make an Apple Watch product, update online financial services, or repackage your mobile app into specific country offerings or to appeal to specific target markets.
When you’re choosing API management, always choose one that has:
- An API gateway
- A developer portal
- Full lifecycle API management capability
- Support for API monetisation
Managing APIs—whether they’re internal or being exposed as products to third parties—will ensure that your APIs are used in compliance with corporate policies. They also allow governance by appropriate levels of security.
Keep on top of regulations
Given the risks and opportunities for malicious action, open banking and open finance are highly regulated industries. And it’s important to stay aware of them—regulations are constantly updated to define how businesses should operate when it comes to providing digital financial services and sharing user data.
As an API provider, complying with the legal requirements stipulated by national laws will ensure your data and business model is safe, secure, and always available to API consumers.
Recent examples have shown how fintech has had to rapidly adapt to changing regulations around the world:
- In 2020, the Reserve Bank of India (RBI) placed a withdrawal restriction on Yes Bank. Third-party apps that relied on Yes Bank’s payment processors for transactions and settlements were also affected. In the face of regulations like this, fintech built with API infrastructures were better able to quickly switch out their payments and transfer infrastructure and keep providing customer services. Paytm, for example, was able to quickly move to using a different provider, which meant their customers’ money wasn’t stuck in Yes Bank accounts.
- In Germany, the financial regulator ordered Wirecard to cease all its activities. Several fintech companies that operated on Wirecard, including Curve, ANNA, Pockit, Dozens, Soldo, and Revolut, were affected, as well putting their customers in a state of panic. ANNA, a mobile business account provider with roughly 20,000 customers, ordered clients to withdraw money as soon as possible. Again, solutions built on API infrastructures, like Revolut and Curve, were able to make a swift migration from Wirecard to another provider to continue serving their customers.
- In Nigeria, Providus Bank discontinued the virtual account service that it offered to many fintech platforms. This left users in a state of uncertainty, especially after the bank gave no clear reason. Fintech platforms like PiggyVest and Cowrywise quickly switched to a different API provider to enable their users to continue processing payments.
Of course, different countries have different regulatory frameworks for open banking and APIs, and as we’ve already talked about, those regulations can switch at any time. API-enabled infrastructure can help you future-proof your business and remain flexible.
With security and analytics capabilities, logging tools, and the ability to manage developer portals and user access protocols, fintech and cryptocurrency API providers are increasingly looking to use Tyk’s API management platform as a central part of their infrastructure. Tyk can help you speed up your fintech services development, ensure security, reduce risk, and enable innovation.