Banks are notoriously stubborn when it comes to adopting technology. It is time to realize the days of men going to the bank in a three-piece suit to pull out hundreds of dollars in cash are over. The future is in our pockets. The future is API banking.
Application Programming Interface (API) is the facilitating interface between two software. It is the intermediary that lets two systems communicate.
The waiter example is a famous demonstration of API. A customer ordering food through a waiter is an illustration of API. The customer reads the menu and communicates what they want to the waiter. The waiter relays that to the kitchen and brings it to the customer. The waiter acts as the API.
Now, imagine that as an application on your phone. You sift through options on the app, you click, and more information is delivered to you. Uber uses APIs to connect to maps, for example. API technology has been around for a while, but only recently has banking caught up.
API technology is a complete digital transformation in banking. The latest developments in banking have astronomically increased the scope of future fintech. Banking API and other financial technology can now provide services that otherwise would not have been possible.
Several finance companies have applications utilizing API technology. Applications like Venmo and Cash App are intermediaries between users and banks. Banks that do not take advantage of this financial technology risk falling behind.
Banks use API to provide access through third parties. Increased access to their services broadens their reach and accessibility, which draws more people to the bank. It keeps them loyal by making their services simple.
How Does API Banking Affect Fintech?
The latest developments in banking create unprecedented opportunities for fintech companies. Banks may not want to invest in creating their own API applications. However, plenty of established applications on the market can create a symbiotic relationship with banks.
Banking as a Service
Fintech companies can latch onto banking as a service (BaaS) technologies to grow. All of which is possible via API. Fintech, BaaS, and banks work together to create a simple user experience. Behind the scenes, there is rigorous communication between systems through API.
An example is a fintech company using BaaS services, like customer verification, on their platform. The service is not created by the fintech company. Instead, they partner with BaaS services that act as the intermediary, saving new companies money and time. They do not have to code these systems themselves.
API technology has led to open bank data, also known as opening banking. Open banking is a step away from centralization. Instead, banking access works through networks. Fintech companies use open banking to work with all the banks. Companies have access to the financial data of the consumer through APIs.
The possibilities are endless for fintech companies in a fully open banking environment. Fintech platforms can solve specific, individual problems for consumers. They could be offering solutions to problems of which consumers are unaware. They can make sense of the entire financial situation of a person and subsequently present it in an easily understandable way.
The market is responding positively to third-party fintech platforms. Fintech has more power than they might realize. The increased trust consumers have in these platforms puts pressure on banks to get involved.
The more banks are willing to provide in terms of services and access, the more potential for innovation. Innovation leads to more fintech platforms. More platforms mean more jobs and more profit.
API Banking Is Here To Stay
Fintech companies are bright-eyed and always thinking about potential. They want to innovate by changing the way consumers view banking. Twenty years ago, no one could have imagined that consumers would trust anyone but a bank with their finances. Fintech platforms are now a legitimate way to seek financial advice, deposit money, and send payments. It is now the bank’s turn to catch up.
API technology has made it so the banks are covered. API banking has come a long way from just being a connecting layer.
The modern API is standardized and thus secured and monitored. APIs are now subject to constant cycles of updates and revisions. Monitoring the systems is how we prevent outdated technology that could fail.
APIs have become widespread and are now adopted by most major financial institutions. It is an exciting time to get into fintech. API technology has grown into a game-changing technology that has opened up the banking world. And because of it, there is more freedom than ever for partnership between banks and fintech companies.
Banking is now done in sweatpants while lying in bed. The future of banking is API technology.