TrueLayer's take: APIs are not just helping fintech— they are fintech
There are some technologies that make change better, and there are technologies that are necessary to change. APIs are the latter. To say that APIs are underpinning fintech is to understate their importance. APIs have been as important as the cloud and mobile technology in creating the fintech market we have today, and without APIs the march of fintech simply will not progress, says Marie Steinthaler, VP of Data Products at TrueLayer and one of our Fintech 5X5 Report contributors
APIs create a common language that connects providers with each other and—crucially—with businesses that are not financial services. These connections will define the next decade of fintech, embedding payments into apps and brands. These partnerships are new ground both for these brands, and APIs will underpin and enable these.
What can we expect in 2021?
The first and most obvious use of Open Banking APIs has been to provide a single view of finances by aggregating multiple balances and account data in other banking apps. Consumers are quickly getting used to the idea that their credit card balances and savings accounts can appear in their banking app of choice. This is a start of a shift in both what is possible and expectations over what is possible. Given time, consumers will no longer see it as a neat added extra but will complain when it’s not available.
This sharing of information will extend beyond just financial services companies accessing the data, to companies in many industries making use of banking data to deliver better services and products. What if, for example, you could see what was in a particular bank “pot” before making a purchase at your favourite marketplace? What if your fitness app released funds as a reward for exercise? Both fintechs and those outside fintech will bring fresh ideas—and in 2021 we are starting to see more innovative use cases emerge.
2021 has seen the acceleration of bank-tobank payments via open banking, for example, enabling customers to instantly fund their trading and investment accounts. We see some clients where 70%+ of users are now choosing open banking as their primary payment method. The use of embedded API-initiated payments as part of everyone’s daily lives are likely to be a few years away yet, but there won’t be as big a gap between fintechs adopting this technology, and widespread use by non-fintechs as some have assumed. Indeed merchants are likely to be the ones who lead it into the mainstream.
The shift from using APIs to passively receive information, to actively driving transactions or engagement between parties, is a big one. Each successful use case will mean the market will have confidence to move further—from balance information, to initiating payments, to customers opening entirely new products without ever leaving the app they are using, all made possible with APIs.
‘Usage and value metrics will come to the fore providing a far better understanding of how APIs are being used and their impact.’
In 2021 we have seen regulators in more markets outside of Europe pushing forward legislation that requires banks to provide APIs. But there will be a shift in attitude here too.
While there was resistance to the adoption of Open Banking and PSD2, forward-looking banks will be creating APIs without regulators demanding that they do so. Banks don’t want to leave fintechs to be the only agents of change, and taking action on APIs is one good way of driving transformation.
APIs will also become more sophisticated, enabling more financial products, such as mortgages and loans, paving the road to a future that is dominated by embedded finance.
In 2021 we have seen an end to the “vanity metrics” that have been a big part of the discourse around APIs, which showed how much availability there was of APIs rather than their use. Usage and value metrics will come to the fore providing a far better understanding of how APIs are being used and their impact.
Is an API right for your business?
It’s important to think about this the right way round—use case first, then the technology being used to support it. Do not fall into the “blockchain trap” of looking for where a solution can find a problem. It’s okay—and we encourage it!—to get excited about the possibility of what APIs can offer. But when all you have is a hammer, everything can look like a nail. Once you fully understand your customers’ needs, the use case, and the type of API that will make this work, it’s often best to work with a partner to make things work. Open Banking APIs can be complex, making them prohibitively expensive to integrate with directly. Even though the promise of APIs is standardisation, and though they are standardised in some regions, there are different interpretations of that standard. We are quite some way from plug-and-play.
‘Even though the promise of APIs is standardisation, and though they are standardised in some regions, there are different interpretations of that standard. ’
The exception will be those businesses that are big enough to devote the resources necessary to create and maintain an API. Even then, they should think hard about whether this is core to their business and worth building intellectual property around. Like many other technologies with wide applications, it’s important to decide whether it is worth redoing work that others have already done.
Read full article and find out how 5 technologies will impact fintech over 5 years by reading our Fintech 5X5 Report here >