Fintech APIs provide ready-made, customizable software that can be easily integrated to build new solutions and scale existing products.
By integrating Application Programming Interfaces (APIs), fintechs can innovate rapidly, diversify their business models, and capture profitable market segments with minimal, low-code tools.
Today, the fintech industry is an exploding market propelled by innovative technologies such as artificial intelligence, blockchain, cybersecurity, automation, and many more, with a cumulative annual growth rate of over 19.8% expected between 2022-2028.
Rather than build technological capacity in each of these technologies, APIs provide low-code architectures to develop and connect these technologies into existing web platforms or mobile applications.
Thus, APIs have (unsurprisingly) become a key fintech trend, enabling companies large and small to:
- Scale existing products by adding new functionalities for a seamless customer experience
- Create new yet robust products with shortened execution timelines
- Connect and merge with third parties for improved customer services
- Save more money and time while creating new or additional financial products or services
Truly, fintech APIs are a transformative technology that are propelling faster development and collaboration in the finance space.
In subsequent sections, we will explain further what APIs for fintechs are, their use cases and how to build an API for fintech companies.
What is an API in Fintech?
Simply put, APIs are connective intermediary software that help technologies interact and businesses better collaborate.
With APIs, businesses can share data and functionalities via common interfaces that can be read by machines.
In our case, fintech APIs establish a synergy between financial parties by facilitating interactions via programming code. Fintech APIs can be:
- Public APIs: Open and commercial for use by numerous third-party developers
- Partner APIs: Used to facilitate data sharing between recognized business partners
- Private APIs: APIs built for internal use within a company alone
The type of fintech API deployed is dependent on the use case – some of which will be covered.
However, an ideal API for fintechs must be:
- A developer-first API with appropriate documentation for easy integration, extension, and management.
- Reusable. The API product must consistently provide a reusable and interoperable architecture for fintech products
- A standardized, secure and properly governed product that can help fintechs scale
For businesses looking into how to build an API for fintech services, these features are important and they can be targeted to meet any number of use cases, which we’ll now dive into.
Use Cases of Fintech APIs
Fintech APIs are shaping and transforming the industry by breaking down silos between organizations and technologies, enabling increased data sharing and collaboration.
In essence, fintech APIs enable interaction between fintechs and other fintechs, fintechs and traditional financial institutions, and between finance companies and businesses across other sectors.
Below is a list of some common and scalable use cases of APIs in fintech.
Payment Processing APIs for Businesses
Processing payments for businesses is a crucial unique selling proposition for fintechs, as they help to collect, manage and streamline payments for digital and physical businesses across the economy.
Demand for this service has risen in recent years. First, a decline in cash usage and changes in customer’s payment preferences has exploded the use of digital wallets and mobile payments by customers around the world.
Secondly, receiving and managing payments is a complicated process for businesses, and fintechs offer solutions to simplify payment collection, processing, and management.
Here, a payment processor API can optimize the experience of businesses and customers alike, offering additional important services, such as enhanced security, ID verification, and fraud detection.
Today, payment processors are commonly deployed by businesses across a variety of industries, ranging from payment gateways for e-commerce companies to bill and payment processing APIs for utility service providers.
Peer to Peer Payment APIs
Peer-to-peer transactions (or P2P payments) enable direct transfers of money from one user to another via mobile devices or cards linked to bank accounts or digital wallets.
P2P payments are used for multiple needs ranging from making purchases, sending money to others, and paying bills.
P2P payments can be made via various means such as:
- Local currencies: Direct cash transfers are most common in P2P payments. Transfers are deducted from the balance of the sender and credited to the recipient.
- Airtime transfers: Airtime is money, and more users are adopting airtime transfers for peer-to-peer transactions
- Data bundles: Similar to airtime transfers, users can transfer data bundles to others directly, which can then be converted into local currency.
Peer-to-peer payments are facilitated by APIs, depending on the type of transaction.
International Payments and Remittances
The international money transfer market is a humongous industry that is estimated to be worth $1.22 trillion by 2030, according to Allied Market Research.
Cross-border money transfers made by migrants and for commerce have expanded with globalization, and the resulting wide scale adoption of digital channels has created profitable entry points for fintech solutions.
Customers now rely more than ever on fintech companies for instant, secure and affordable cross-border payments, and by using APIs, fintech products can leverage mobile technologies to offer diversified services such as:
- International cash transfers: Cross-border money transfers are executed via payment processors that convert one currency to another by matching currency exchange orders. With digital remittance, migrants can send money to recipients with less costs and more speed by disintermediating banks.
- Cross-border airtime money transfers: While airtime can be used for local transfers of money, it is strongly valued as an international remittance solution as well. Airtime is increasingly used for cross-border money transfers, with transfers of up to $25 billion made via airtime alone in 2019, a gigantic leap upwards from $700 million in 2012.
Airtime money transfers are a stable, instant, affordable and secure avenue to send funds securely. Fintechs can scale up their business by offering international airtime transfer services with international mobile top-up APIs.
Digital Gift Card APIs
A 2021 survey by BlackHawk revealed that 83% of people prefer to transfer gift cards than hand over physical gifts, and 33% of gift cards purchased are for personal use.
Of the gift cards purchased for personal use, one-third of them are digital gift cards.
Digital gift cards contribute a large segment to the gift card economy, estimated to be valued at $845.39 billion in 2022. Furthermore, the purchase of digital gift cards boomed during the Covid-19 pandemic, with 43% more people using them, according to Payments EQ.
This use has been sustained, with the transferability, value and ease of use of digital gift cards making them ideal as a means of alternative payments for customers.
Investment management APIs
Fintech APIs simplify and optimize investment management for companies.
With investment management APIs, firms can:
- Automate monthly investments
- Garner and utilize real-time financial and investment data from a variety of sources
- Expand functionalities, innovate and diversify product offerings
- Utilize customer data more effectively
Numerous investment management APIs exist that can be applied to numerous services, ranging from data analytics to stocks, risk analysis to money management, and many other applications.
Smart contracts and cryptocurrency APIs
APIs for decentralized applications propel cryptocurrency exchanges, smart contract creation and blockchain utility.
By connecting to a cryptocurrency exchange API, real-time market data can be collated and interpreted. Furthermore, cryptocurrency payment processors can be used to exchange tokens for cash or airtime.
Additionally, smart contract APIs can be used to automate contract execution when programmed conditions are met.
Open Banking APIs
Banks are looking to evolve to fulfill market demands, and part of the growth strategies they now deploy is collaborating with fintechs.
Thus, open banking – a set of frameworks that allow data aggregation and sharing between financial institutions – is becoming increasingly adopted.
Powered by open banking APIs, big banks like BBVA and Goldman Sachs are taking early steps to capture stakes in the $37 billion sector that enables fintechs to access permissioned customer data for small fees, so they can better meet consumer needs.
Fintech APIs create low-code architectures that businesses can easily and rapidly build upon.
By providing ready-made building blocks, other businesses can easily innovate and expand their products by exploring new market segments.
Ideal APIs for fintech are secure and compliant to regulatory requirements, enabling developers to focus on delivering scalable, fully functional products in record time.
If you are interested in integrating a developer-first fintech API in your business, please contact the Reloadly support team and we’ll guide you through the process of selecting the correct API for your specific use case.