How to solve fintech pain points with APIs

In short, APIs reduce the effort and time needed to launch an app by effectively outsourcing big chunks of fintech software development to third parties that offer out-of-the-box solutions (or at least nearly out-of-the-box).

A mid-sized real estate startup, for instance, could find it prohibitively expensive to hire scores of data scientists and programmers to develop in-house software to assess prospects' credit risk. Rather, the company can simply tap into the API of fintech darling Plaid to benefit from its data analysis and credit scoring systems for a substantially smaller fee.

On top of that, API speed in finance is critical to digital transformation, making financial institutions more agile and less tied to physical assets. Picture old-school banks as monoliths: bulky, centralized, and often stuck with a single vendor. Their size hinders nimble strategic pivots, a massive disadvantage in the era of hyper-personalized customer experiences. 

By (carefully) embracing digital transformation and APIs, fintech companies can prioritize revenue growth over excessive infrastructure costs. Through integrations, they can foster a dynamic fintech ecosystem around them, interacting with each other to provide new products to customers. Digital transformation generally and fintech API development specifically allow novel industries such as neobanks to thrive on branchless banking and low-fee lending services, as open banking and API integration go hand in hand.

2023 also saw a two percent increase in fintech app installs globally. A number that, while seemingly small, in reality translates to hundreds of millions of new consumers worldwide carrying a few extra fintech apps in their pockets, each with at least a handful of API integrations. Those integrations are crucial to enable financial access to customers who often lack the funds or credit scores to engage with traditional banking but are still savvy when it comes to technology: lower and middle-class Millennials and Gen Zers.

Gen Z, in particular, has reached an inflection point because there are more adult Gen Zers than adolescents. As a large consumer group that notoriously does not enjoy visits to the bank branch, the attested way to capture Gen Z fintech customers is through innovative offers on quality financial platforms — a feat impossible to achieve without APIs.

Take buy-now-pay-later (BNPL) solutions, for example. The emerging payment method is cherished by 53.7 million young adults in the US alone — 22.7 of which are Gen Z — who shop on segment leaders such as Afterpay. For BNPL apps to work, at the bare minimum, they need digital wallets, payment processors, credit-related data, and security checks.

As each of those requirements can potentially shrink the customer pool, rather than rigidly integrating these into their development, BNPL companies enlist multiple fintech APIs to amplify user experience. One example of how they can do that: integration with the wallets and bank accounts their leads already use to verify their data and welcome them aboard as seamlessly as possible.

Consider Klarna, a BNLP platform with its own API that allows retailers to incorporate its payment method during checkout. While Klarna’s proprietary app boasts double-digit million-lifetime downloads, it’s through their API that they can reach over 150 million customers globally, charging partner stores for a fraction of every purchase. It’s a win-win: Merchants are also glad to include BNPL integrations in their systems because it boosts retail conversion rates by between 20 and 30 percent.

Whether a fintech application is in the planning, MVP development, or post-launch phase, the flexibility inherent to APIs makes it easy to accommodate them into most business strategies.

There are three primary ways in which fintech APIs can enhance a well-outlined project.

Some APIs for fintech are clear-cut in improving user experience (like the payment processors that streamline transactions), but not every integration in fintech app development is directly related to finances. User onboarding, for example, counts upon various APIs with customizable user journeys to ensure your newly acquired customers stay within your app after downloading it. With an API, Know Your Customer (KYC) checks, a common compliance challenge against lead conversion, can be fine-tuned to a few simple quick steps with the proper integrations.

The same goes for APIs that enhance user engagement. Offering integrations such as Splitwise, which allows users to split expenses on collective purchases like groceries or during trips, may add enough flair to your UX and earn smiles from your target audience.

Think of APIs as your outsourced growth department. If your infrastructure is self-owned, a growing user base means expanding servers, bandwidth, and the development teams to maintain it. But with APIs? They operate as de facto cloud-based services, meaning that whenever your user demand grows, you just have to pay those extra API calls to your third-party providers to scale appropriately.

Fintech companies can scale even more seamlessly by identifying potential partners able to tweak their own baseline integrations to align with the company's offerings. In some cases, this can lead to a new fintech product or feature, built using shared APIs and featuring both brands.

Microservices development, vital in challenging legacy monolithic applications, is another way to lower your dependency on behemoth architectures. Microservices derive their strength from segmenting tasks, which makes them somewhat dependable on APIs to function. The right combination of APIs and microservices can transform your fintech app into a more flexible, easier-to-maintain solution.

Here’s a quick guide on the most popular types of APIs for fintech.

Now, you’ve crunched the numbers, eyed up the competition, and got a handful of potential API providers for each major feature. The million-dollar question now is: What criteria should you use to determine who makes the cut?

Downtime is a financial loss (duh), so research your candidates’ historical performance on uptime and how they behaved during peak loads. Check out customer review sites or chat directly with their existing clients for some inside scoop on support assistance. And remember, you're in it for the long haul, so make sure the API can scale without hiccups.

Detailed developer resources — like software development kits (SDKs), sample codes, and tutorials — enable your developers to understand the rationale behind updates and implement the API easier and faster. Also, do a quick pulse check on the provider’s community engagement: This often-overlooked aspect can give you a valuable glimpse into the company’s popularity and commitment to its products.

Fintech apps can’t afford to botch on API security, so look for integrations with verifiable safety measures, including encryption, authentication protocols, and access controls. Reputable API providers should comply with regulatory industry standards such as PCI DSS, plus GDPR and its analogs depending on your region. Furthermore, check data ownership policies to ensure your company’s data stays under your control for both risk mitigation and simplifying any future migrations.

There are plenty of qualitative and quantitative methods to measure the value brought by APIs, and you can start by categorizing the benefits brought by the integrations into two groups.

The first group is centered on customers. Here, you’ll gauge how APIs have improved your customers’ perception of your offers. That includes:

• User adoption – Measure how quickly new users adopt API-related features. Compare the churn rate before and after API implementation, looking for patterns that show where users tend to bail on your app.
• User engagement – Keep tabs on how often your API is used. If it's a regular go-to, it's probably hitting the mark, which can be validated through user feedback reviews about their experiences with the new features.
• Customer loyalty – Beyond churn rates, dive into how users champion your brand. If API users show high net promoter scores (NPS) scores, it's a good sign of increasing loyalty. Also, don't forget to scan app stores and specialized forums for (hopefully) positive feedback and referrals.

The second group is centered on operations. In other words, how efficient your implementations are at oiling the gears of your business. For example:

• Resource optimization – Evaluate the time saved on tasks post-API integration. Give added scrutiny to historically resource-heavy tasks, and check how much APIs have contributed to your operational efficiency by reducing errors and manual intervention. 
• Competitive advantage – If your app is loaded with features, compare the time it took to launch a new one using APIs versus starting from zero. Then, count the number of users you've won over in this timeframe as an indicator of the API's success.
• Revenue generation – APIs can unlock fresh revenue avenues, like when you integrate a top payment processor favored by a specific demographic. Verify not only the total cost of ownership (TCO) and standard ROI measurements — such as the direct revenue accrued — but also how much market share you’ve earned versus your competitors.

APIs deserve every byte of their hype, but they’re not a universal fix. If, for example, your legacy systems are complex and too entrenched in your business operations, they won’t be able to accommodate modern APIs cost-effectively and at scale. (Especially if your architecture’s original design dates back to the dial-up era.)

Other key strategic reasons against APIs revolve primarily around security, be it operational, regulatory, or both. For instance, if a large investment bank deals with highly confidential trading data subject to strict data-sharing regulations, it might prefer to hire developers for an in-house solution so it doesn’t depend on third-party providers. That way, they can build their own controlled access points and security measures to curb vulnerabilities, ensuring their sensitive data stays compliant and within their systems at all times.

Likewise, if your company has unique proprietary systems, it can take a while to find a perfect off-the-shelf API. Instead of relying on a standard product that could compromise performance or safety, contact the API developer to check if they can provide a tweaked version or partner with a specialized vendor for tailor-made solutions.