The financial landscape is undergoing a digital transformation. Financial services are more accessible than ever, open banking has connected financial institutions worldwide, and fintechs are designing products that push the borders of what finance can be.
And there are three letters responsible for it all—API.
APIs, or Application Programming Interfaces, have revolutionized how we do business. The global open API market was worth $2.39 billion in 2021 and is expected to reach $13.21 billion by 2030. So, what exactly is an API, and how do they work within the fintech industry and Web3?
What is an API?
An API, at its core, allows applications to communicate with each other. It’s like a messenger or mediator between different apps, allowing them to request and receive information or services from each other in a standardized and secure way.
It allows companies to use third-party tools and share data between different applications and software. They connect all the solutions a company uses to save time and resources, as well as break down data siloes. They’re also used to integrate applications easily into existing software.
Examples of common APIs we use in our day-to-day lives include:
- The weather app on your phone pulls current weather conditions and forecasts from multiple sources, such as the National Weather Service and the Met Office.
- Lyft uses Google Maps API to offer location services, plot your course, and pick-up and drop-off options.
- Stripe offers payment APIs to integrate payments into different websites.
- Whenever you log into a website using your Google details, an API makes this work and safely handles your data away from the website.
In these examples, the API requests data or services from another application. Then it’s presented to you in an easy-to-understand manner that fits in with the user interface of the app or site you're using.
So, in your weather app, for instance, that’s a little sun or rain icon telling you if you need to bring an umbrella. Behind the scenes, there’s a huge amount of data being shared, but the API makes light work of delivering messages between applications.
Benefits of APIs
One of the primary uses of APIs is within organizations. The average enterprise uses 1,200 different apps in its operations. APIs make this all possible and allow for the seamless usage of different software together and the transfer of data between programs. There are many benefits, including:
Easy data sharing: Data is the lifeblood of modern organizations. With APIs, data can easily flow between organizations, departments, programs, and third-party providers. The end-users can easily switch between applications, and data is presented in a user-friendly manner.
Security and privacy: APIs provide a secure and standardized way for applications to share data. They make use of security protocols, such as encryption, authentication, and authorization, to ensure that data is shared securely and that only authorized parties have access to it. This reduces the risk of data breaches, unauthorized access, and other security threats.
Cost saving: Integrating other services using APIs is less resource-intensive than having to create every aspect of your application. It saves organizations time and money. Also, expanding services is much cheaper to do by integrating a new application than using an entirely new solution and migrating all the required data.
Flexibility and scalability: Developers can easily create applications combining different programs, data sources, and services. This can save hugely on developmental costs compared to building everything from scratch.
Innovation and collaboration: With the use of APIs, different companies can create solutions together. Open APIs (publicly available) let developers collaborate together and access different software.
APIs can help organizations create new value, drive innovation, and enhance the user experience, making them an increasingly valuable tool for businesses and developers in today's digital economy. And nowhere is this more beneficial than within the fintech space.
How fintechs use APIs
APIs have transformed the financial industry. Since the passing of the PSD2 (Payment Services Directive 2) directive, banks and other financial institutions have been required to open their payment infrastructure to third-party providers through APIs, enabling them to initiate payments, access account information, and provide new financial services to customers.
This open banking directive ignited a spark in the fintech industry, spurring innovation and creating new opportunities for fintechs and other innovative startups to enter the market and provide innovative financial services that meet the evolving needs of customers. Many neo banks and fintechs, such as Revolut, PayPal, and Stripe, all use APIs as an integral part of their platform.
Some of the use cases for APIs in the fintech industry include:
- Payment processing: Payment APIs allow fintechs to integrate payment options for their users and could even unlock micropayments.
- Account aggregation: Using APIs, fintechs can access, categorize, and aggregate data from multiple financial sources, including bank accounts, cards, investments, and crypto wallets, to offer users a unified view of their finances.
- Risk assessment: There’s a host of risk management APIs that enable fintechs to remain compliant and access credit scores and transaction data for lending decisions.
- Analytics: APIs put a rich world of data at the fingertips of fintechs allowing them to make data-driven decisions and provide actionable insights to their clients.
- Personal finance management: APIs allow fintechs to offer their users personalized financial services and tailor their products to different user profiles.
Overall, APIs can help fintechs deliver more innovative, secure, and user-friendly financial services while enabling them to leverage other organizations' data and services to enhance their offerings. Many fintechs are even using APIs to expand their services to complex areas like Web3 at low costs and high rewards.
Using APIs to enter the world of Web3
Many fintechs are making the move to integrate Web3 options into their services. Fintech companies like Revolut and Robinhood saw their customer base double or triple after introducing crypto services. Revolut’s customer base grew from 3.5 million users in 2018 to 10 million by the end of 2019. With such potential, it’s easy to see why integrating Web3 services is a forward-thinking business decision.
APIs are of particular benefit to these fintechs either already in Web3 or interested in expanding their services. Web3 is complex, with multiple blockchains, networks, tokens, and protocols. This can be a headache for fintechs used to standardized traditional finance. APIs can make sense of this confusing landscape and offer a way for fintechs to navigate Web3 safely.
Using Web3 APIs, like Blockmate, allow fintechs to easily and securely integrate Web3 payment services, create crypto bookkeeping or taxation applications, gather aggregated crypto data, and access detailed analytics about Web3 users and communities. It makes it easy to provide streamlined and standardized services to users with both traditional finance accounts and Web3 wallets.
API: Paving the way for financial innovation
APIs are a powerful tool that has transformed the financial industry. They enable fintechs to provide innovative products to their customers securely. With the increasing adoption of Web3, APIs like Blockmate are becoming an important tool for fintechs looking to offer their customers Web3 and other blockchain-based services.
Overall, the future of the fintech industry is closely tied to the continued development and adoption of APIs. As the industry continues to evolve and embrace new technologies, APIs will play an increasingly key role in driving innovation, competition, and growth in the financial industry.
