Today, customers don’t simply appreciate convenience and accessibility, and they expect them – particularly when it comes to their digital banking experience. For financial institutions and fintech companies, effectively adapting to this shift requires a clear understanding of API banking technology. With API banking, a collaboration between fintechs and banks, and credit unions are put within easy reach, benefiting these organizations and their customers.

Examples of API Banking

APIs play a vital role in the Banking as a Service (BaaS) (or Banking as a Platform) industry and embedded finance. 

BaaS

Financial institutions can utilize API banking technology to develop digital banking experiences for their customers, such as mobile and online banking. When facilitated by a trusted provider, an API can save banks and credit unions significant expense, time, and effort (compared to in-house app development). 

Financial institutions may also opt to use APIs to link their banking services to various fintech applications, building collaborative relationships that drive positive customer action. For example, a bank might employ an API to embed the option for customers to open a new credit card from within a given fintech app.

Embedded finance

The concept of embedded finance refers to the practice of embedding banking or financial tools in non-financial applications. 

For example:

  • Embedded payments in retail and rideshare apps make it simple for customers to pay for products or services directly in the app via a linked payment card or account.
  • Embedded lending services such as Afterpay or Klarna are built into retail sites and apps, offering customers the ability to secure small loans to fund purchases. 
  • Other embedded finance services can be used by banks and credit unions that are interested in embedding their services in other types of applications, such as investment apps.

API Banking Benefits for Financial Institutions

API banking provides ample benefits for financial institutions, such as the ability to:

  • Digitize services to more effectively serve customers, particularly those that prefer digital banking or those who are not located near physical banking branches
  • Leverage partnerships with new fintech apps and companies, therefore gaining access to different customer markets and areas.
  • Remain competitive in a tech-driven economy

API Banking Benefits for Fintechs

In order to be successful, a fintech cannot exist as an island, making APIs extremely useful. The benefits of API banking for fintechs are diverse, including:

  • Access to a broad network of potential partners
  • The ability to offer additional tools/services that are complementary to yours
  • FDIC insurance
  • Reduced development work and expense
  • A higher quality experience for users

APIs are at the Core of Fintech

APIs have sparked meaningful changes in the typically-traditional business of banking, both in terms of fintech start-ups and retail financial institutions.

Fintech start-ups are utilizing APIs as a faster, more affordable means for development. Additionally, APIs serve as a direct route to their target markets. Beyond start-ups, APIs are also affecting traditional banks or credit unions. Investments in public APIs have become more commonplace, and highly reputable institutions are constructing partnerships via self-service APIs. Standard APIs are being expressly designed to simplify the development of new products on top of existing data and functionality.

Ultimately, APIs are powering marked advancements in fintech and banking alike.

What This Means for Your Business

Above all, APIs are ushering in a new era of collaboration. They are also redefining how new products are created and taken to market, opening the door to exciting and profitable possibilities.

Business leaders should be considering API strategies and efforts that:

  • Use API technology to enhance present services
  • Make plans for API-driven technology in the future
  • Take stock of products, services, and any competency that may be useful for other businesses (potential partners)
  • Options for public APIs that would deliver a solid return on investment

Let Us Evaluate Your Organization’s Needs with a Free Discovery Call

NXTsoft is a leading provider of API technology, supporting a wide variety of partners in the development, maintenance, and management of tailored APIs. Our mission is to connect developers, financial institutions, and fintech companies via our innovative API marketplace, driving beneficial relationships that serve all parties’ objectives.

Contact our partnership team today to equip your organization with the API technology it needs to dominate the market.

Image Source: Drozd Irina / Shutterstock