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What is API: Everything You Need to Know about API in Fintech

What is API: Everything You Need to Know about API in Fintech

February 15, 2022

Today, gadgets are all you need for most things. If you want to buy a plane ticket, you can use your device to access the online travel agent application. If you're going to purchase various items, just choose in your favorite marketplace. Or, if you want to make online payments, there are different e-wallet platforms you can choose. You need just a few clicks to get all your needs and wants.

However, have you ever wondered how the process of payment systems in the marketplace and barcodes for e-wallets goes? Actually, within that seemingly invisible process in every click we make, the Application Programming Interface (API) works. What is API? You may hear term like API call, public APIs, web APIs rest API. API plays an essential role in making work more accessible and achieving business goals for application developers and business owners. How about API in fintech, then?

What is fintech?

Nowadays, fintech has likely become a big part of your professional and personal day-to-day. It is a catch-all term for any technology used to streamline, augment, digitize, or disrupt traditional financial services. This is an industry that has grown rapidly over the last few years and has a bright future ahead of it.

Fintech refers to algorithms, software, and applications for both computer and mobile-based tools, which at its core are utilized to help business owners and consumers better manage their financial processes and operations. A new breed of companies that use high-tech and computer-based systems to provide financial products and services is called fintech.

Not only software development, fintech, in numerous cases, also includes hardware, like innovative trading platforms. By using fintech platforms, users can do ordinary tasks such as moving money among accounts, depositing checks, paying bills, or applying for financial aid.

As one of the most rapidly growing tech sectors, fintech seeks to improve and automate the delivery and use of financial services. It also encompasses technically complex concepts such as peer-to-peer lending and offers a wide range of financial services and products through innovative digital platforms.

What is API?

API is the “backbone” that enables fintech or can be interpreted as software that functions to connect any application with other applications. With API, two applications that were initially wholly unrelated can be connected and integrated so that they can communicate their features between them.

In simple terms, API is a bridge between an application and another application or between a client and a server. With a set of code, this bridge is built to provide multiple access points to make information from application A can cross over to application B seamlessly.

API plays a vital role in application development because it allows an application to access data, features, services, or operating systems used by connected applications. API can save time, effort, and money used in application development. It is a shortcut to make it easy for users to achieve their goals.

APIs in fintech

Now that you know what is API, the following are some use cases types of APIs in fintech:

1. Banking

APIs help banking to act as modular platforms so that non-bank businesses can offer financial services by seamlessly integrating tech between the two. Without needing their own banking license, non-bank companies can choose from the bank's services to provide to their customers. To stay compliant, access to the bank's regulatory expertise is also given to them.

An example of the use of APIs in banking is mobile banking. This service, which allows bank customers to perform banking transactions via smartphones, has become an essential part of the financial services industry. API makes it possible for many banks to offer mobile-friendly banking features to attract a diverse customer base, giving customers ease in managing their finances.

2. Payment

Money moves around the world, and one of the reasons it is possible is because of APIs. As a fast-growing and high-growth industry, fintech companies are changing the way companies interact with each other in the form of payments in real-time. For example, numerous companies are changing the way we pay, like PayPal. All you need to do to send money across the world is simply hit a button on your smartphone.

3. Lending

The way consumers obtain loans is changed by fintech, which uses APIs as technology that allows financial service providers to personalize the loan process and tailor it to each individual based on credit history, income, and location. Since it is not only limited to banks, people can borrow money from many providers, which increases access to credit in underserved populations dramatically.

4. Savings and investment

Now consumers can invest their money anywhere they want with hundreds of apps on the market available. As fintech brings a revolution in investing, its barriers are falling more and more to the point that easy-to-use apps are made available to consumers. Apps like Robinhood, for example, are used to make it incredibly easy for anyone to invest their money and learn about the markets.

5. Trading

Trading is the process of long-term financial transactions in the form of currencies. In the financial market, trading is an essential instrument because it can generate large amounts of money. Fintech, through evolution, has seen the growth of AI technologies that can bring out financial insights from large datasets. By using advanced natural language processing, these technologies allow investors and traders to gain meaningful insights in a matter of seconds.

So, what is API? API is a set of codes for building and integrating software applications that enables various applications to exchange data and functionality quickly and securely. API allows fintech companies to disclose financial data and information related to payment transactions from their customers in a reciprocal manner (the principle of equality).

To utilize financial data to create innovative products and give more options of financial products to customers, fintech companies can work together with a trusted and experienced open banking service provider like Ayoconnect.

Ayoconnect, established in 2016, has connected more than 1000 companies in Indonesia to a centralized Open API ecosystem that integrates online and offline retail business with financial service providers. Find out more about Ayoconnect here!