Over the past few years, the growing discussion and regulatory/industry-wide initiatives around open banking, the new wave in bank-FinTech partnerships, and the growing emphasis on open architecture have been the key drivers pushing for APIs to take center stage in FinServ’s journey towards a comprehensive digital transformation.
The advent of API-driven innovation has been instrumental in transforming the way businesses operate. A set of protocols facilitating interaction between two or more systems, APIs enable secure, cost-effective, and controlled access of the data and capabilities between two parties. While the level of ‘openness’ or the extent of permission needed for data sharing depends on the type of API in question – i.e. private API/partner API/open API. In the world of financial services, open APIs have taken everybody by storm with all the discussions around open banking and PSD2.
Several banks have begun to develop their tech-infrastructure to meet the regulatory mandate and/or prepare themselves for the inevitable future of API banking by opening up their APIs. However, the bulk of APIs today are exposed by banks/businesses/tech providers in a partner API arrangement, for an implementation or collaboration objective. While APIs have been around for a while now, it is now that their usage has picked up pace.
Almost all the FinTech providers today use API-based integration for their services. A stripe API lets you install a payment button anywhere on your website or blog in just a matter of minutes. Facebook or Google APIs are everywhere, enabling you to sign in to any website without any hassle. Starling Bank enables SMEs to avail banking services where they can have access to market leading modular solutions of their choice through APIs – e.g. Xero for receivables, TransferWise for cross-border payments, Kabbage for lending – bundled together through plug-and-play systems. In fact, several forward-looking regulators and industry bodies have also begun to use APIs as a tool for innovation. The pack of India Stack APIs by NPCI in India is a key example where Aadhaar, eSign and other innovative capabilities are available to businesses through an API. Singapore now runs a whole-government API facilitating better integration of data and services a bureaucratic maze that includes 85 government agencies each with their own requirements.
Now that we have seen how APIs have garnered heavy traction recently, let us see what the numbers say. According to data from ProgrammableWeb, which maintains an API directory with over 20,500 registered APIs, there has been a surge in the number of newer FinTech/FinServ APIs added since 2017, as compared to the number in the period of 2014-2017. Financial APIs topped the charts among the other fastest growing categories of APIs (e.g. Data, Analytics, Payments, eCommerce etc.) in terms of the most number of APIs added post 2017. If we compare the yearly average data for the period 2014-2017 to the data post 2017, Financial, Payments and Stocks – all key FinTech/FinServ APIs - are three major categories which have seen the highest growth.
In terms of yearly average, there is a staggering growth of 284% in the number of stock trading APIs post-2017, as compared to the period 2014-2017. The growth - in similar terms – for financial APIs was 90% and for payment APIs was 51%.
These statistics are well aligned with the fact that the FinServ industry is one of the largest beneficiaries of the API economy. Most of the agile, nibler FinTech business models owe their success to these APIs. With the developments in the open banking, consent tracking and data protection space, the importance of APIs in our day-to-day financial lives is set to increase.