The financial service industry always ranks high when it comes to the fastest-growing API categories in the past few years. This isn’t a surprise; digitization, open banking and finance, the rise of digital forms of payment, FinTech evolution, the need for easy and fast funding, the need for real-time financial information, and ever-increasing customer demand for financial services has forced financial institutions to evolve under this most transformative period in the global finance and banking sector.
In the present scenario, APIs are playing an increasing role in banking and finance. As more financial institutions have invested in financial technology during the pandemic, more and more lenders are leveraging APIs to access real-time financial data of their customers to determine creditworthiness, offer customized solutions and make infrared lending decisions.
The Roles of APIs in Finance
An application Programming Interface is an interface or a software intermediary that allows two applications to talk to each other. In other words, it allows different applications to communicate with each other over a computer network. In banking and finance, an API refers to a protocol that makes data and information available to lenders from a third-party company or makes a bank’s service available to other third-party companies.
Today, three main types of APIs are being used by financial institutions are a private, partner, and open APIs. Open APIs are the most famous and play a crucial role in helping lenders translate from traditional banking to open banking. With the help of artificial and machine learning, APIs enable innovation and automation.
APIs are making banks future-ready by meeting customer expectations, providing easy and fast services, and offering customized financial products and services. Lenders can leverage financial APIs to access the most robust and real-time data of their borrowers, which later helps them to make data-driven and intelligent decisions. The pressure on banks to create and update specialized apps in-house diminish. Using an API, banks can reduce costs, save time and offer different services.
The Growing Use Of APIs in Finance and Banking
The combination of increasing demand and digitization is driving the rapid adoption of APIs in finance and it continues to see big growth. As per a report, an average of more than 600 financial APIs is added per year. The number of financial services-related APIs added grew from 3 in 2005 to 646 in 2019. As API usage increases, financial institutions are using it for a variety of purposes. For example, APIs can allow lenders to create advanced financial products and services. APIs can also be used to quickly confirm income and cash flow during the loan approval process.
Meeting Customer Demand And enhancing Overall Customer Engagement
Modern customers are tech-savvy, and this is not only millennials. Hence, with increasing expectations of their online experience, customers seek advanced banking products delivered as swiftly as possible.
Whether it’s transferring money online, applying for a loan, and just exploring the products and services, customers need automatic solutions. APIs help lenders to provide advanced solutions that they can’t do otherwise.
However, if a financial institution develops its own API for every function, or tries to develop every new product and service to meet its customers’ ever-growing demands, it will fall behind in no time. With open APIs, financial institutions can leverage innovative products and functionality through a third party. Lenders can save their time, money, and efforts and focus on thighs that are most important for them.
Besides, APIs also enable financial institutions to better understand their customers’ unique financial needs and meet their expectations. APIs can also work as a distinct way to attract and retain customers, boost their engagement, and address their needs in a future-proof way.
This engagement is important where there is cut-throat competition and new entrants endure to disrupt the financial service industry. Moreover, new devices, technology, and products are emerging in the market, forcing lenders to adopt innovative methods to retain and draw customers.
APIs capabilities to design new innovative products, offer customized lending solutions, access the most real-time data, and make informed lending decisions are transformational. Financial institutions that do not embrace APIs now, will pay high opportunity prices and witness a fall in their competitive value.