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Fintech API

What is a FinTech API?

Category: API Documentation

Last updated on May 8, 2023

According to Tipalti, the global financial sector will be worth 26.5 trillion by the end of 2022. The rapid growth of the worldwide financial sector and the push for digital transformation in businesses are undoubtedly factors contributing to the proliferation of FinTech in recent years. Legacy financial institutions can digitally transform by offering their data to third parties for subscription fees. Startups are now seeing the opportunity to create personalized experiences for users by providing new functionality that leverages institutional data that was unavailable before.

What is a FinTech API?

Let’s break it down. The Oxford dictionary defines FinTech as “computer programs and other technology used to support or enable banking and financial services.” An API is an abbreviation for Application Programming Interface. APIs define the rules software components follow to interact and communicate programmatically. FinTech APIs are a specific type of API that allows businesses to integrate banking and financial services components into applications.

You have likely interacted with a FinTech API without knowing it. For example, if you have ordered takeout, the app you used to place an order likely (almost certainly) used a payment processing API to validate and process your payment. Another example could be a personal finance application that uses an Open Banking API to retrieve your account balances and analyze your expenses.

What are BaaS and open banking?

FinTech is closely related to another concept, Banking as a Service, or the BaaS model. In the BaaS model, a BaaS platform exposes APIs for FinTech businesses, digital banks, or third-party providers to access the information they need to integrate financial components into their applications. The third party pays the platform a fee in exchange for access to data and functionality. This practice is known as Open Banking.

After subscribing to a BaaS platform, a FinTech business builds new functionality “on top” of an existing financial institution’s platform. New functionality includes new banking products or financial data aggregation from many accounts.

FinTech APIs allow financial institutions to make their data available without revealing how their internal systems operate. A benefit to subscribers is their third-party applications can leverage the financial institution’s existing security and compliance standards.

The types of FinTech APIs

There is a broad range of financial services. And so, many FinTech APIs are available. The most common FinTech API types are financial data providers/aggregators, payment processors, investment brokers, regulatory tech (RegTech), and KYC (Know Your Consumer) APIs.

Financial data providers and aggregator APIs

These APIs provide financial data to third-party applications, including accounts and transactions, customer profile data, and account statements.

Think of data providers as traditional banks. Traditional banks only allow you to access data for that bank. Almost all banks have APIs, including Citibank, Discover, Wells Fargo, and Synchrony.

Data aggregator APIs, on the other hand, are more flexible because they allow access to data from many banks. Aggregators let developers combine personal banking, investment, and debt management into the same interface. One of the top financial data aggregators is Plaid.

Since financial data providers are limited to one bank, they have fewer use cases than non-bank aggregators. However, data providers (traditional banks) are known for their robust security.

Payment processor APIs

Payment processing APIs are among the fastest-growing types of FinTech APIs. A payment API allows applications to connect to a payment platform to validate and process payment transactions. You can use these APIs to create an interface with a payment solution without needing to create one. Examples of payment processor APIs include Stripe, Square, Paypal, and Adyen.

A key reason businesses use payment processors to process their transactions is security. They can build applications that piggyback off an existing payment platform’s infrastructure for authentication and fraud detection. Businesses use payment APIs because, without them, they would need to properly store and secure cardholder data to protect them from breaches. Payment technology requires PCI compliance (​​Payment Card Industry Data Security Standard) and maintenance of PCI security standards over time. And, not to mention, payment processors offer tokenization and P2PE (point-to-point) encryption.

Investment APIs

There are two primary types of investment APIs: brokerage and stock market APIs.

First, let’s discuss brokerage APIs. Traditionally, brokerages were walled gardens. There was no way for a third party to build off a brokerage’s infrastructure to access user data and create new functionality. Investment brokers are financial institutions that expose their data to third-party applications through APIs. Brokerages allow applications to use APIs to buy and sell securities on behalf of users. Examples of brokerage companies offering APIs are Interactive Brokers and Binance.

The next type of investment API is the stock market API. This type of API does not offer the ability to buy and sell securities. Instead, it focuses on providing rich stock data to users so they can make informed investment decisions. Examples include Yahoo Finance, Alpha Vantage, and Quotient. CoinAPI offers market data for the cryptocurrency space.

RegTech APIs

Regulatory technology, referred to as RegTech, is a technology aimed at helping businesses maintain regulatory compliance. Before RegTech, analyzing and synthesizing regulatory documentation into actionable obligations was a manual process. RegTech is seeing massive growth due to increased regulations, particularly in the financial sector, which kickstarted after the 2008 financial crisis as governments attempted to regain the public’s trust. RegTech is an attempt to help businesses deal with the burden of compliance.

In the past, compliance workers needed to sift through regulatory documents from many separate regulatory agencies to monitor updates that may affect compliance. Documents included regulatory websites, press releases, and RSS feeds for each regulatory website. Compliance workers needed to synthesize the data into an actionable plan to meet new regulations.

Developers can use RegTech APIs to build interfaces that only display relevant regulatory information to the user. Not only does RegTech allow you to collect regulatory information, but it turns data into actionable compliance obligations. Artificial Intelligence (AI) is central to this capability and is at the heart of RegTech. A prominent RegTech platform built around AI is Ascent.

KYC (Know Your Customer) APIs

According to Swift, a leading provider of financial messaging services, “Know Your Customer (KYC) standards are designed to protect financial institutions against fraud, corruption, money laundering, and terrorist financing.”

Businesses use KYC APIs to verify the identity of users, monitor user activities, and verify payment sources to prevent fraud and corruption. Features include analyzing digital footprints, verifying documents, and performing anti-money laundering checks. Some APIs, like those offered by Onfido, offer verification using biometrics, video, and e-signatures.

Also Read: What is Open API? Advantages, Disadvantages & Examples

Advantages of using FinTech APIs

Reduced cost and increased development speed

FinTech APIs reduce development costs and increase development speed because you no longer need to build financial components like payment gateways into applications. Instead, you can access a BaaS platform’s data and functionality through an API. Development speed is also faster because you do not need to debug services offered by BaaS platforms.

Improved customer experience

API developers can use FinTech APIs to improve the customer experience by focusing on the core features that make their applications unique. Instead of reinventing the wheel, they can build functionality on top of an existing BaaS platform to provide personalized experiences to users.

Also, check out our article on How to create an enchanting API developer experience with the documentation

Leverage security infrastructure

FinTech APIs allow developers to leverage a BaaS platform’s existing security infrastructure. In the realm of payment processor APIs, for example, you can leverage authentication, fraud detection, cardholder data storage, PCI compliance, and P2PE encryption.

Automate compliance

RegTech APIs allow you to automate compliance. They can analyze regulatory information from multiple sources to produce actionable obligations specific to your business.

Prevent fraud

KYC “Know Your Customer” APIs specialize in verifying the identity of users to protect financial institutions from fraud and other illegal activities. In addition, they verify payment sources and ID documents.

The Best FinTech Platforms by Use Case

Financial Data Providers and Aggregator APIs

  • Plaid API – Best for Connecting Multiple Accounts

The Plaid API is a financial data aggregator that allows you to connect accounts from multiple financial institutions into one interface.

Plaid

Plaid‘s API lets you analyze users’ financial data and perform tasks like identity verification and accessing financial transactions and account balances.

As an aggregator, Plaid allows you to gain insights and spot patterns in a user’s preferences and behavior. Using this data, you can create personalized experiences to market, sell and support the user more effectively. A bonus is that Plaid, like other aggregators, provides authentication for all accounts accessed through the platform.

  • Citibank API – Best bank-specific provider

The Citibank API is a financial data provider, not an aggregator. As a provider, Citibank only supports transactions related to that bank. Citibank is a good choice if you only need to access Citibank customers’ data.

Citi

The Citibank API allows you to access a user’s accounts and transactions, profile data, and retrieve customer statements.

Payment Processor Platforms

  • Stripe – Best for eCommerce

According to the Forbes article “The 11 Biggest Fintech Companies In America 2019”, the payment processor Stripe is the largest FinTech in the United States and is worth 22.5 billion USD. Stripe focuses on eCommerce and POS transactions to a lesser extent. Stripe is both a payment processor and a payment gateway.

Stripe

Stripe is known for its excellent developer resources, including thorough documentation, use cases, and code tutorials. Stripe supports credit and debit card transactions, Google Pay, Apple Pay, account routing by currency, ACH, and invoicing.

One disadvantage (for some) is that Stripe requires you to use their payment gateway, unlike some more flexible payment gateway providers.

  • Square – Best full-service payment platform

Square‘s features make it suited for both eCommerce and brick-and-mortar businesses. If you need to support brick-and-mortar, you may choose Square over Stripe.

Square

Square offers a host of APIs to access different functionalities within Square’s platform. Even though the platform is large and complex, you can find the APIs you need by using their API explorer to filter by component.

Square has more features than Stripe and is considered a “full service” payment platform. In addition to processing card transactions, Square supports loyalty programs, marketing, loans, inventory management, and more.

Investment Platforms

  • Interactive Brokers – Best full-service brokerage

Interactive Brokers is a full-service investment platform that allows you to access market data and execute stock buys and sells on behalf of users through its API. If you are looking for a platform with the full capabilities of a brokerage, then Interactive Brokers is a good choice.

Interactive brokers

Interactive Brokers has two primary APIs, the Client Portal API and Trader Workstation (TWS) API. The Client Portal API allows you to trade, monitor and manage a user’s IBKR account on their behalf. The Trader Workstation (TWS) API lets you automate trading strategies, access market data, monitor accounts, and view portfolio performance.

Using Interactive Brokers APIs, you can build trading applications and software, access securities data, and use the IB SmartRoutingSM to locate the best stock, option, and combination prices at the time of trading.

  • Polygon Stock API – Best rich stock data

Unlike Interactive Brokers, Polygon Stock API is a stock market API, not a full-service brokerage. This API is a good choice if you only need high-quality stock data without needing to buy and sell securities.

Some of Polygon’s key advantages are low latency data APIs and nanosecond timestamp data. Polygon has low latency because its data centers are connected to NASDAQ, BATS, NYSE, IEX, and other exchanges. Polygon advertises that it can bring institutional-level data not accessible by most retail traders due to its connection to the top stock exchanges.

Unlike many stock data providers, Polygon timestamps data down to the nanosecond. Many other providers have millisecond timestamping. Timestamping on this scale allows for more granularity when analyzing historical performance.

  • CoinAPI – Best for cryptocurrency market data

CoinAPI is a notable mention as a market data provider for cryptocurrency markets.

RegTech and KYC

  • Ascent – Best for regulatory compliance automation

Ascent‘s goal is to automate the compliance lifecycle for its clients with the help of artificial intelligence (AI). Ascent is a good choice if you want to leverage AI to generate actionable compliance obligations.

Ascent

Ascent helps you monitor regulatory changes by analyzing regulatory information relevant to your business. It then synthesizes the information into actionable obligations for your business to execute. Ascent allows you to integrate its data insights into your existing GRC tools or workflows. You can then manage your compliance lifecycle in your GRC tool and map Ascent’s data to policies, controls, and procedures.

  • Onfido – Best ID Verification Platform

Onfido is a verification platform that can run KYC (Know Your Customer), AML (Anti-money laundering), and anti-fraud checks to ensure compliance with the latest regulations.

Onfido

One of Onfido’s features is its database of over 2,500 ID document types from the majority of countries in the world.

Onfido supports video verification, biometrics, and AI that can accept or reject applications.

Also Read: Internal vs. External APIs – Does it Matter?

Conclusion

FinTech APIs are the fastest-growing type of APIs due to the rapid growth of the financial sector in recent years. Legacy financial institutions are expanding their current business by opening their data to third parties. FinTech startups are providing new functionality and customer experiences that leverage institutional data that was not previously available.

Also, check out our article on API Lifecycle Management

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Shakeer Hussain

Feb 24, 2023

                       
                     

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