Ever wondered how all of your financial technology (FinTech) seems to work so well together?
How every online retailer, even the smallest company, has the ability to accept credit card payments? And how can you so seamlessly transfer between bank accounts and digital wallets?
The FinTech API is the piece of technology that’s at the center of it all, making this cross-platform communication possible.
In this article, we’ll explore the ins and outs of Fintech APIs, explaining what they are, how they work, the different types that exist, and how to choose the right one for your use case.
What are FinTech APIs?
A FinTech API is a software intermediary that enables different financial systems and apps to communicate and share data securely
API stands for application programming interface, and they’re used right across the software world, both inside and outside of the financial realm.
In FinTech, APIs act as a bridge between front-end apps, such as your mobile banking app, and back-end financial systems like payment processors. They’re provided by software developers to allow financial institutions, startups, and developers to create innovative new financial products.
For example, if you’re building an e-commerce website, you might use the API from a payment gateway to accept digital payments for goods sold on the site.
The importance of FinTech APIs in the financial industry
Most people don’t realize that they’re actually using FinTech APIs incredibly regularly, since they are a technology that applies the background. They enable the interaction and communication between various tools, such as your bank and your accounting platform.
FinTech APIs provide both businesses and consumers with several important benefits, including:
- A more seamless customer experience with streamlined processes like payments, lending, and investment
- Support for personalization and real-time updates
- Driving innovation by enabling faster development of financial products and services, increasing competition and opening up new tech like open banking
- Connecting underserved populations with digital financial tools, making services like credit and online payments more accessible, and allowing businesses to expand globally
- Creating cost efficiencies by allowing developers to leverage pre-built systems, delivering a lower cost to the consumer
- Allowing non-financial companies such as retailers to offer services like payments or loans, creating new monetization opportunities
How do FinTech APIs work?
Ok, so how do these helpful little pieces of tech actually work?
APIs operate through request-response cycles, which look like this:
- API call: When a user initiates an action (like checking their bank balance) the app sends a request to the API.
- Response: The API processes that request, retrieves the necessary data or performs the requested action, and sends back a response.
To enable cross-platform communication, APIs translate the data they send and receive into standardized formats that both solutions can understand. This helps ensure interoperability between systems that might use different programming languages.
It also enables real-time data exchange, such as displaying stock price changes as they happen or providing instant payment confirmation, things that simply couldn’t happen without the backend integration provided by a FinTech API.
Of course, with every API call, some authentication and authorization protocols need to be implemented. Commonly, this happens via OAuth 2.0, a standard where users grant limited access to their data without directly sharing credentials.
FinTech APIs also ensure that data is transmitted securely using SSL/TLS encryption and must comply with regulatory standards like PCI DSS for payment data and GDPR for user privacy.
Benefits of using FinTech APIs
FinTech APIs are an incredibly powerful technology, providing a number of important benefits to the financial industry and software developers within it.
These include:
- Improved efficiency through automation tasks like payment processing, data retrieval, and account reconciliation, reducing manual labor.
- Enhanced security and compliance by incorporating robust security protocols such as encryption and multi-factor authentication.
- Support for modular development, enabling businesses to easily scale their operations and giving them the flexibility to integrate new features without having to overhaul existing systems.
- Eliminating the need for building functionalities from scratch, reducing development and maintenance costs, and providing a lower barrier to entry for new financial tech companies.
- Providing pre-built functionality that accelerates the development of financial apps and reduces the time to market for new tools and features.
- Improved customer experience by enabling real-time updates, personalized features, and unified experiences across multiple financial touch points and systems.
- Simplifying cross-border financial transactions, enabling FinTech companies to expand into international markets more efficiently.
- Fostering partnerships between traditional banks, FinTech companies, and non-financial platforms, allowing for improved collaboration and opening up new business models and revenue streams.
- Enabling access to rich data that businesses can use for analytics, allowing them to make more informed decisions and offer targeted financial products that solve real user problems and fulfill market demand.
Types of FinTech APIs
Being such a broadly used technology, it's little wonder that there are a few different kinds of APIs, depending on the category of FinTech tool we’re talking about.
Here are a few of the most common types of financial APIs you’ll come across.
Payment processing APIs
Tools like Stripe, PayPal, and Square offer APIs for accepting payments, managing subscriptions, and handling refunds.
These platforms facilitate secure online transactions and reduce the complexity of payment infrastructure for developers while helping them maintain compliance with security standards such as PCI DSS.
Banking and ID verification APIs
These APIs allow apps to connect with banks to retrieve account and transaction data or to complete balance checks.
They also facilitate secure user authentication, which supports in preventing fraud and meeting KYC (Know Your Customer) requirements.
Some examples here include Plaid (banking integration), Onfido, and Alloy (ID verification).
Crypto and Blockchain APIs
These APIs allow apps to access cryptocurrency market data and integrate digital wallets.
For example, CoinAPI provides real-time market data, while solutions like Infura offer access to Ethereum and other blockchain networks.
These APIs make it easier to build digital wallets and crypto-based payment systems without deep technical expertise.
Stock tracking and market data APIs
Brokerage APIs like Robinhood can help execute trades, while market data APIs like Polygon.io and Alpha Vantage provide real-time stock prices and analytics.
These APIs allow developers to easily integrate real-time data from external sources and even add trading capabilities into their apps.
RegTech APIs
RegTech (regulatory technology) APIs help businesses stay compliant with financial regulations.
For instance, tools like Ascent and ComplyAdvantage use AI to track regulatory changes and assess compliance risks. They offer APIs that allow developers to integrate this tech into their own software solutions on the back end.
Lending and credit scoring APIs
These APIs make it easier for lenders to assess borrower creditworthiness, allowing them to automate aspects of the lending workflows.
For example, Experian API provides access to credit scores, while Blend API supports loan origination.
Personal finance management APIs
These APIs, offered by the likes of Mint and Yodlee, aggregate financial data across accounts to give users insights into their spending and saving habits.
For instance, they can pull data from your bank accounts, allowing you to track budgets and monitor your personal financial health.
Choosing the right FinTech API provider
Looking to use a FinTech API to integrate financial services into your own product?
Here are a few important factors to consider:
- The company’s reputation and reliability. Look for a proven track record of uptime.
- Compliance with regulations like PCI DSS, GDPR, or PSD2, depending on your business location and service type.
- Scalability and the ability to handle increased loads as your business grows.
- The company’s support documentation for using the APIs, tools and SDKs provided, and availability of dedicated support channels like forums or live chat.
- Whether the API provides support for multifactor authentication, RegTech features, and other security factors such as TLS encryption, built-in intrusion detection systems (IDS), and web application firewalls (WAF).
- The product’s analytics and reporting capabilities to monitor performance.
- How easily the API integrates with your current tech stack, and whether the provider offers a sandbox environment for testing prior to deployment.
Introducing BILL’s API
Like all good FinTech tools, our financial operations platform, BILL, comes with an API that you can use to unlock efficiency, scalability, and security in your workflows and payments.
With the BILL API, you can streamline accounts payable, accelerate accounts receivable, and scale company payment processes.
