API integration is and why is the way forward for financial
Integrating new applications into the existing IT infrastructures is a pain for banks. They use 1000 unique applications; however, only 29% of them communicate with each other, according to Connectivity Benchmark report. To solve that and enable point to
point integration, they spend time and money.
The same report also suggests that 80% of the applications aren’t reused for developing new products and services.
This process not only slows down financial institutions in their development journey and hinders customer experience but also drains resources.
What is API integration?
API or Application Programming Interface is a set of protocols and codes that directs the communication between applications. They provide better means to share data between two or more applications. With the use of API’s developers need not manually code
and facilitate communication between applications.
This is not only helpful for internal applications, but API integration also allows banks to integrate third-party services into their existing infrastructure. It helps them extend their offering and upgrade existing services without spending much time and
How does it work?
The third-party platform will then integrate the bank APIs.
According to a Deloitte study, around 22% of banks have already deployed their own API platforms, while 39% are working on it.
Types of API’s
Private/ Internal APIs
As the name suggests, this type of API is used by developers within the enterprise.
Benefits of Private APIs
Cost savings through automation
It allows for improved collaboration with the team
It gives greater security in data exchange
This model of API is operated between a third party and a bank to extend their services. It enables banks to utilise the new products and channels that enter the space instantaneously. Banks can also lend their APIs to third parties.
Since it allows for external collaboration, enabling advanced services, a large number eventually shift to partner APIs from private APIs.
Benefits of Partner API
It gives more efficient collaborations
It enables the monetisation of the API
It also provides greater security in data exchange.
A public API can be used by any external party and developers to build products. This the most unpopular model of API as it makes entire business data available to third parties. Hence banks are usually bothered about data security and customer privacy.
Benefits of Public API
Innovation through external partners
The building of the developer community
It allows access to new markets
How to Choose the Right Financial API for Integration
Below are some key points to keep in mind while looking for an API to integrate:
There exist multiple service domains in the financial services sector, e.g. payments, finance tracking etc. Decide which service domain API you would like to integrate? Is it an existing service that you are upgrading or a new service?
Identify which banks or services are popular among your target audience; it will help you shortlist vendors.
Some API providers have minimum documentation; look for providers with extensive documentation. They may be paid or have tech limitations like scaling constraints etc.Look for elaborative FAQ’s.
Involve a legal member of your team to check whether the process of data sharing meets legislative requirements. You need to also ensure that all the developers from your team comply with the selected API’s security standards.
Real World API Integration Cases
Below are some of the most popular and successful API integrations that have happened so far:
Paypal and Siri Integration
IoS users can now use the voice command feature in Siri to transfer money through their PayPal account. In 2018, it reached $41Billion in transactions between its payments services PayPal, Xoom and Venmo.
Robinhood Connecting with User’s Bank Account
The investment bank uses plaid’s banking API to onboard users and link their bank accounts to the app. The API also helps connect various other applications such as TransferWise, Stripe etc.
It Opens Up Opportunities
Traditional banks may initially look at this as a threat. Since all the customer data they have been protecting so far will be made accessible to other players in the market too. However, as they realise the opportunities of collaboration that opens up with
APIs they will eventually end up favouring it.
API integrations will also benefit FinTech as they can channel their services to the masses through big names.