Connecting the dots: how APIs can drive your financial success

Movement of money has always been integral to the global economy. So much so, that despite the rigorous checks applied to the financial industry, transferring funds faster has always been the aim. Now, firms are seeking ways to transfer data quicker as well, to once more supercharge their success.

However, with there being so many financial touch points in play these days from banks to PSPs, payment gateways to acquirers, connecting the dots between the vast financial landscape is a difficult feat on paper. Thanks to APIs, this is not the case. So how do they work, how can they benefit financial operations and are there any potential downsides to their use? Discover the answers to these questions and more by reading on. ‍

Why do APIs matter today?

To know why APIs matter today, first of all, there must be an understanding of what they are. API stands for Application Programming Interface. Collectively, an Application Programming Interface therefore consists of protocols and definitions which allow for two or more computer programs to communicate between each other.

Considering how reliant we are as a society on technological programmes, by understanding the definition of APIs it becomes clear how important they are to us all. When it comes to the financial aspects of our lives, this holds true too. In fact, with fintech users in the US growing from 58% to 88% between 2020 and 2021 to see them become more common than social media and videos streaming users, arguably, the importance of APIs is precisely because of our love for financial innovation.

How can APIs drive financial success?

Now that we know what an API is, we can examine how they bring financial success. On a basic level, APIs make development work simpler, cutting costs and time across all industries; however, when it comes to finance, APIs offer a unique set of benefits. This has not gone unnoticed; of all API-First companies, roughly 40% of them are fintechs.

A variety of factors are likely to be behind this trend. They include security, access to data, and the growing power of consumers to demand seamless experiences. All of these are now influential to the success of financial firms. Fail to meet security regulations and they face fines and losing the trust of consumers; not have access to contemporary data and they will fall behind competitors; deliver a clunky user-experience and consumers will find a competitor.  

So how can APIs ensure that these worst-case scenarios don’t pan out and scupper the success rate of fintech initiatives?  

Security

Whilst APIs are not usually thought of for security purposes, a by-product of their application is their ability to help firms remain secure and compliant with regulations. Although like how all pieces of technology are susceptible to security breaches, APIs tend to be more secure than most. Why? Because by their very nature, APIs are used between many parties, resulting in them coming under extremely high levels of scrutiny.  

For instance, an API such as that used for Open Banking will be responsible for operating alongside established, well-known banks like Barclays and Natwest. As a result, any API which is used by such establishments are bound to have gone through rigorous testing. Typically, reputable APIs pass their standards thanks to a revolving token system which makes it difficult for hackers out-manoeuvre.  

Access to data

The primary association of APIs is that of being able to share data between parties. Whilst this inevitably serves consumers, it also benefits financial firms too. For starters, there is Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protect Act to comply with. This dictates that consumers must always have access to their financial data. By connecting with APIs to outside of fintech apps, financial firms can therefore comply with this regulation by default.

Beyond satisfying regulations, sharing of data also offers a commercial benefit to organisations. This isn’t surprising considering that companies have been rapidly seeking to leverage their own internal data for the last couple of decades. Now, thanks to APIs, they have the option to generate positives from data which is acquired by other parties as well.

Instances of this proving particularly successful within the financial landscape include:

• Bank loans – small businesses (SMBs) are the backbone of many economies; however, they remain reliant on being financed via loans. Typically, banks are the go-to source for such financial support. In years gone by, banks would have to do thorough investigative work before proposing a loan and specific terms for each individual SMB they wished to work with. However, through APIs, now they can access third-party data on those they are potentially loaning to in seconds. Everything from credit rating to previous loans can be reviewed, resulting in the delivery of more competitive offerings at record speed.
  
  
• Know Your Customer – a core component of security processes to avoid money laundering, fraud and under-age activity are Know Your Customer protocols. Doing so is absolutely necessary but can be a timely operation. However, thanks to the likes of Trulioo being able to share verification of over five billion people via their API, banks, iGaming operators and more can rest assured that their consumers are who they say they are in seconds. In this instance, leveraging data is therefore not used to drive business decisions or strategies but purely to save time.
  
  
• Insurance quotes – avoiding car insurance is not possible, no matter how costly it might be. People therefore tend to shop around to find the best deal for themselves. On the other hand, insurers also need to make sure that they are not entering any agreements which are not favourable for them. Over many years insurers have developed formulas to accurately estimate what insurance they should offer people based on their age, car model, years driving etc. However, through APIs and new Internet of Things (IoT) technology, they can access more relevant data. For example, modern cars can now calculate average driving spped, drivers’ typical routes, the amount of full brakes they apply per journey and more, which certain APIs are able to feed back to insurance companies. As a result, in record times, insurance firms can deliver contracts which best reflect their customers.  

User Experience

Evidently, APIs can offer many benefits directly to businesses, but their full impact is felt when they improve customer experience. Living in a society where we expect everything to be accessible instantly, businesses have high standards to live up to.  

Whilst the nirvana of having everything at our fingertips was only partially fulfilled by the creation of smartphones, APIs get us even closer. Without them, everything about us which we know like the back of our hand, would still have to be told to every single app, again and again. With APIs, this is not the case. Instead, with our permission, our data is collected and shared between apps continuously.

When it comes to interacting with financial tools, this results in a massive improvement for users. Thanks to APIs, financial firms can deliver the following to their customers:

• Swift checkout processes with the likes of Amazon Pay
• Viewing their bank balances across all their accounts in one app
• Reviewing where they are spending their money most  
• Gaining a mortgage in principle in record time
• Faster credit application processes

Overall, knowledge that APIs can deliver these benefits to financial firms, paired with the fact that they are being demanded by authorities, merchants and consumers alike, means that it is not surprising that fintechs are increasingly turning to APIs. Plus, with, 90% of executives believing that APIs are mission-critical, it seems that their presence is not going to go away any time soon. However, could an over-reliance on APIs be causing a problem which some companies are yet to see?

Should we be concerned about an API avalanche?

Adoption of APIs is sky-high - their popularity reflected by how they are highlighted across fintech websites as a core USP. With their ability to make life easier for financial professionals whilst also aiding the experience of businesses and consumers alike, inevitably they are used en-mass.

However, by providing the efficiency, ease and speed which they promise, a consequence does arise. That of transactions being able to move at record speeds. Whilst this might sound like a positive for many, for finance teams who take care of back-office operations, it is the source of a big problem.  

Dealing with chargebacks and reconciliation are vital processes for any firm; however, they can get easily overwhelmed if they have to deal with a higher volume of transactions – something which APIs are bound to guarantee. Countering this side-effect of APIs is typically something which is overlooked when adopting them. APIs offer such promise that any teething issues are not given attention.

Nevertheless, there must be a resolution. Given the speed and efficiency of APIs, when it comes to countering their effects in a financial capacity, ironically there is only one resolution – to implement more APIs. At  Aurum, this is an inevitably for our clients who strive to deliver the best experience to as many customers as possible.

That is why we raise to the challenge which the likes of payment APIs create with a collection of over 600 compatible APIs. Each and every one of them is able to connect with our single next-gen reconciliation platform, so that payment companies, fintechs and any firms who are increasing their volume of financial transactions via APIs can keep up with the demands of regular reconciliation.

Apply APIs with peace of mind

Undeniably, APIs offer far too many benefits to miss out on. In fact, by 2025 it is estimated 30% of the world’s revenue will be created via them. If you’re therefore tempted to implement them, do so with the knowledge that your back-office will be able to cope – deploy Aurum, the only reconciliation platform with enough APIs to control the transaction volume they will create.

Book a demo today to discover how our extensive bank of APIs can help you gain quicker financial closes, unrivalled data insights, and accurate reconciliations in seconds.