APIs, or application programming interfaces, are collections of functions or procedures that create software applications that provide unique value to users. APIs provide an operating system, application, or service that can be useful to you by providing connectors between two things. For instance, a common API is the Facebook login plugin you get when registering for a new site, or the PayPal login option you get when checking out from an e-commerce platform. By helping you bypass creating a new account or buy desired items quickly and securely, APIs provide value to you seamlessly and subtly.
APIs haven’t only taken the retail industry by storm, however. For example, APIs in the shipping industry can help track packages from start to finish, leaving no room for ambiguity about the location of packages. APIs can truly be used to provide value across industries. They also have a growing role in finance too. Their ability to streamline and smooth the flow of information from point A to point B shouldn’t be underestimated.
In this article, we are going to discuss the role of APIs in the financial industry, and how it benefits from them.
Types of APIs in Finance
There are three types of APIs that financial services primarily use. There are private APIs, partner APIs, and open APIs. Private APIs are used within a banking organization’s internal systems. In 2015, 88% of institutions said these APIs were essential to running a smooth and functioning operation each day. Second, there are partner APIs. Partner APIs connect banking institutions with third-party institutions and allow for the customizable integration of business processes that two parties need to work together efficiently. Finally, open APIs foster the communication of data between third parties and the banking institutions in question without necessitating a formal relationship like in partner APIs. Security concerns are more valid with open APIs. Additionally, they are particularly useful in the finance industry, as they enable the sharing of relevant and useful information, such as customer purchasing habits, banking/finance goals, and risk tolerance.
Benefits of APIs in Finance
APIs in the finance industry means a host of advantages financial service firms wouldn’t otherwise have access to. APIs in banking means, first and foremost, access to additional consumer data, which can lead to more informed business decisions and a greater general awareness of your target audience and market.
Using APIs in financial services can, like aforementioned, enhance the user experience in innovative ways. This can be done, for instance, by enabling new plugins, like voice banking and loan processing. Furthermore, the ability of APIs to provide access to new products and services shouldn’t be overlooked.
Next, by streamlining processes (namely the sharing of information between two parties), APIs inherently increase the efficiency of firms. Increased operational efficiencies are paired with decreased time for products to get to the market and customers. This shouldn’t be underestimated when last-mile delivery is so expensive.
Additionally, the connections afforded by APIs -- the inherent relationships cultivated between parties -- mean that, depending on the individual situation, the use of APIs can directly lead to new or improved revenue streams.
Finally, the implementation of APIs by firms demonstrates a strong desire to promote worthwhile up-and-coming technology. Firms that have APIs are illustrating a dedication to fostering and promoting continuous innovation, valuable traits for financial service firms.
Security with APIs in Finance
Like mentioned earlier, concerns about securities with APIs in general and open APIs, in particular, are rampant. With the highly sensitive nature of the information in the financial industry, these concerns shouldn’t be overlooked. However, APIs provide benefits that actually negate security risks. When using contrasting APIs with traditional manual or file-driven methods, they benefit from reducing the chances of human error. By introducing strategies for both parties in the API connection to enforce, firms can ensure the integrity and security of API information and management. Single policy enforcement points, which act as “front doors” to digital resources, can be introduced to add yet another level of security to APIs and API management.
All in all, using APIs means you will be able to offer services you wouldn’t otherwise be able to, allowing firms to be at the cutting edge of fine tech. In a marketplace as competitive as finance, any such competitive advantage should be highly valued. The use of APIs can help firms customize user experiences to your needs and desires, providing value that can’t be obtained otherwise. Not to mention, API’s potential to expand to beyond what we currently use them for should definitely be a consideration. By implementing APIs into processes now, financial firms are demonstrating a desire to meet future innovation possibilities head-on.
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