Let’s start with some basics.
The simplest way to explain an API (Application Programming Interface) is: “software that allows different systems to talk to each other”.
In FinTech, APIs are driving massive opportunities for new business models, apps, and service offerings that weren’t previously possible. In many instances, it is these APIs that are enabling the disruption and innovation that we are seeing across just about every aspect of FinTech at the moment.
How are API’s enabling FinTech?
FinTech, at its core, aims to offer faster, cheaper, easier, and more accessible financial services through the use of technology. In order to do this, there are many parties that need to talk to each other, often at the same time. For a single transaction to occur or a service to be delivered, there are many parties that need to communicate to achieve the desired outcome.
You might need a bank, an app, an insurance provider, a KYC (Know Your Customer) provider, a risk assessment tool, and multiple additional third-party providers to talk to each other to achieve a single desired outcome. This is made possible by APIs.
APIs are not new and have been used in many other industries for a long time. They process literally tens of billions of ‘API calls per day. They have not however always been available in the financial services industry because of how traditional financial institutions kept a tight hold on customer data. This made the use of APIs difficult, if not downright impossible, to interact with third-party applications.
Over the past few years, legislation has, in many countries, been updated to require banks to expose their APIs, thereby allowing third-party providers to access customer data as long as they have the required customer consent for that data.
This shift towards making this data available is what is often referred to as ‘open banking’ and has brought on a massive wave of FinTech innovation, investment, and disruption.
Simply put, the advent of open banking and the improvement of the APIs that power it is paving the way for faster, cheaper, easier, and more accessible financial services to be delivered globally through technology.
With all of that said, let’s take a look at some of the APIs that are being used widely in FinTech.
- Plaid (Bank data aggregator)
Plaid describes themselves as ‘The easiest way for people to connect their financial accounts to an app’, and they are doing this at a massive scale. In the US alone they have connected tens of millions of people to financial institutions through their APIs.
Well suited to FinTechs building financial apps that can execute payments, interact with accounts and manage risk.
Notable brands that use plaid: Venmo, Transferwise, Robinhood
In April 2021 they raised a series D round of $425m off of a valuation of $13.4bn. This gives you a sense of the size of the opportunities that API’s in FinTech are creating.
- Circle (Payments, crypto, DeFi)
Circle describe themselves as: ‘A Payments and treasury infrastructure for the internet.’
They enable businesses to make and accept payments globally through both traditional and blockchain based infrastructure and on a single platform.
They are the creators of the USDC Digital Dollar or stablecoin, which is the fastest-growing full-reserve stablecoin in the world at the moment. Full reserve means that for every USDC token they issue they have got a corresponding USD in reserve and are audited for this reason regularly.
A new offering from Circle is their API that includes the popular Defi lending protocol, Compound to the Circle suite of products. This API will help companies building FinTech apps to access the Defi lending markets, a space that is blowing up.
Well suited to FinTechs that are building apps that will send and receive payments, create accounts and that want to bridge the traditional banking system to the Blockchain and Defi worlds.
Notable brands that use Circle: FTX, Blockfolio, Merj
- Stripe (payments)
Stripe describe themselves as: ‘Payments infrastructure for the internet’.
They provide APIs to enable companies to accept payments, send payouts and manage their businesses online.
At the time of writing, Stripe no longer supports crypto but it seems that this may change again in the future, with this article hinting at the same.
They have a massive range of products that enable just about any business that wants to transact in new ways with traditional financial institutions.
They have some powerful offerings that require no code and are very quick to set up.
These include full payment pages and invoicing.
They also enable their clients to manage and collect client subscriptions.
Their offering can extend to complex marketplaces and takes the payment compliance burden away from the user as it is handled by Stripe.
Well suited to FinTechs building pretty much any business that requires any kind of traditionally based payment processing.
Stripe has grown massively from its Y-Combinator days, through 10 rounds of funding to its current valuation of $95bn.
Notable brands: Amazon, Slack, Google, Xero
- Marqeta (payment card programs)
Self-described as ‘modern card issuing that empowers innovators to change the world’, Marqeta enables FinTech builders to instantly issue and process card payments using their API’s.
Their 4 selling points are:
- Craft new card products for new payment products and to streamline supplier and workforce payments.
- Accelerate time to market by leveraging their existing bank relationships and networks.
- Increase trust through fraud detection, spending controls and compliance.
- Scale faster globally with ready to go offerings for the the US, Europe and Asia
Well suited for FinTechs building card programs.
Notable clients include: Square, Uber, Doordash.
According to CNBC Marqeta listed in June this year with a $16bn market cap.
- Alloy (KYC)
Alloy describes themselves as ‘the Identity Decisioning platform that helps banks and FinTech companies automate their decisions, approve more good customers and outmaneuver fraud’.
They connect to more than 85 data sources to check your customers’ data against the goal of reducing fraud by providing you with more information about your applying customers.
Well suited to FinTechs building software that requires robust KYC onboarding and ongoing risk monitoring.
Notable clients include: Ramp, Marqeta, Gemini
According to crunchbase Alloy secured $40m in Sept 2020 to further develop their digital onboarding offerings.
- Visa Developer (Payments)
In 2016 Visa, the world’s largest retail platform opened its platform to allow developers to build technology using their extensive suite of products and services.
Well suited for FinTechs building pretty much anything to do with payments.
Notable clients include: NAB, US Bank, DragonPass
Visa currently has a market cap of $547.9bn
- BitGo ( Digital asset custody)
Bitgo is a digital asset custody, trading and finance solution that enables their clients to navigate the complex landscape of digital assets with a connected, compliant and secure suite of solutions.
Well suited to FinTech’s that require:
- Storage and management of multiple digital currencies and wallets through single unified interface,
- Digital asset trading application functionality
- Automated digital asset portfolio reporting.
Notable clients include: Ripple, Zcash, Bistamp
According to BitGo, they were acquired in May 2021 for around $1.2bn by Mike Novogratz’s Galaxy Digital
8. Yodlee (Data feeds)
Yodlee asserts that ‘truly innovative digital finances are driven by the most comprehensive and accurate data and intelligence’.
They offer a solution that brings it all together.
Their extensive suite of products and services are used by over 1400 financial institutions and FinTechs including some of the leading banks in the US.
Well suited to FinTechs building products that require data aggression services to better serve their customers.
According to Cointelegraph, Yodlee was acquired in 2015 for $590m by Envestnet.
Notable clients: Finder, PayPal, Tiller
9. Twillio (communication)
Self-described as the ‘world’s leading cloud communication platform that enables you to engage customers across channels – SMS, voice, video, WhatsApp, email and more.’
They offer a wide range of services but essentially, they enable developers to easily build pretty much any medium of communication into their applications.
SMS, Whatsapp, voice, email, or whatever else you want to use to communicate with your customers. Twillio offers an API to use to enable you to do that.
Well suited to FinTechs that need to build great customer communications into their applications.
Notable clients: Airbnb Lyft, Netflix
At the time of writing their market cap was $70bn.
10. Codat (SME data integration)
Aimed at SMEs, Codat is building an API that connects all the systems that hold relevant financial data. The type of information that usually spreads across multiple systems that SMEs are likely to use. Systems like Xero, Sage, Square, MYOB, etc…
Well suited to FinTechs that want real-time data connectivity to financial software.
Notable clients: Zettle by PaPal
According to Techcrunch, Codat recently raised $40m from Tiget to extend and grow its API service.
It is very clear that API offerings are enabling considerable disruption and innovation in FinTech. It is also clear that huge investment is going into this space which indicates nothing but further expected growth.
The message here is clear; why build it again if it already exists and probably better than you would build it?
There are few truly original ideas these days and taking advantage of existing API’s can free you up to focus deeply on the one thing that is truly going to set your product apart. These API’s can give you the space that you need to focus on the core offering of your product.
We are an expert firm that consults on, designs and develops software for FinTech companies around the world. If you have a FinTech project that you’d like to discuss with one of our principles, go ahead and book a call with us here.