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Future-Proofing Fintech with API

December 22, 2023

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API for Future Proofing Fintech

APIs form the core of the digital financial ecosystem. Learn how seamless integrations among distinct parts of the ecosystem are shaping FinTech.

APIs have fostered deeper integration of mobile apps, banking services, payment processors, and credit, driving the incredible growth of FinTech we are witnessing today. Application Programming Interfaces (APIs) form the bridge between databases, banking software, and user applications to streamline data exchange across these heterogeneous platforms. McKinsey’s January 2023 survey confirms the significance of these humble tools, highlighting that on average, major banks are directing 14% of their IT budgets to APIs.

According to McKinsey’s global survey:

  • 88% of respondents say APIs have gained significance since the pandemic.
  • 81% consider them a priority to improve business and IT operations.

API Integrations are Reshaping FinTech

APIs have given rise to banking-as-a-service, open-banking, real-time lending, and many more facilities that have helped embed FinTech offerings within e-commerce, EdTech, and other industries. This is because of the numerous benefits API integrations bring.

Additionally, API-integrations give FinTech partners of larger financial institutions an opportunity to develop complementary services, opening new channels of service distribution for the financial institution.

In the burgeoning BFSI industry, the share of FinTech is projected to grow at a CAGR of 15% between 2022 and 2028. In fact, the future is bright with FinTech revenues expected to grow six-fold between 2023 and 2030, to reach a whopping $1.5 trillion by 2030. The fintech sector, which accounts only for a 2% share the global financial services revenues, is anticipated to rise to a 7% share by 2030, of which banking FinTech are estimated to contribute close to 25% of all banking valuations worldwide.

This is, therefore, the time for FinTechs to exploit the opportunities prudently by refining their operational models and expediting innovation. Key focus areas for this are:

  • Enabling swift and proactive expansion of offerings at scale to enhance the digital ecosystem.
  • Flexibility and agility to offer personalized solutions for dynamic customer requirements.
  • Providing seamless facilities to empower customers to access and use novel products and services rapidly.

All of these are possible with strategic API Integration.

Developing a Successful API Monetization Strategy

API monetization focuses on modernizing operations and processes and driving innovation to elevate customer experiences with unique yet relevant offerings.

Initially, the goal of API integration was to reduce complexities in providing diverse services across touchpoints while ensuring scalability and flexibility. Over the years, it has shifted to API monetization. According to an API monetization strategies survey by Statista, the top categories for enhanced revenues are tailored offerings and creating scalable solutions to enable global outreach.

Source: Survey published by Statista Research Department

FinTechs now need to plan everything, from which APIs to use to developing operational and governance models that optimally leverage API-based architecture. They also need to decide whether to develop the needed expertise and technological infrastructure internally or to integrate third-party APIs. While internally developing the infrastructure is time- and cost-intensive, third-party integrations require deeper understanding of technology augmentation and regular monitoring.

Best practices for a successful API monetization strategy include:

  • Monitor Performance: It is critical to track the effectiveness of APIs being used and their monetization success by identifying KPIs and regularly assessing performance based on these parameters.
  • Adopt a Fail-Fast Attitude: Consistently observe the markets to discover (and set) trends with a fail-fast approach. Creating feedback loops and adopting agile implementation helps establish thought leadership. However, this makes performance evaluation of all initiatives essential.
  • Form Strategic Partnerships: Leading banks and FinTechs tactically partner with businesses offering complementary or adjacent products and services to drive mutual growth through a comprehensive set of offerings.

Higher Levels of API Maturity

API marketplaces have evolved into comprehensive ecosystems with a wide range of services to choose from. Moreover, these marketplaces expand the addressable market across geographies and demographics. Simultaneously, financial institutions are consistently prioritizing the development of API roadmaps across strategic, technological, and people dimensions. Notably, in the 4 years from 2019 to 2022, average API maturity among FinTechs had grown from 3.0 to 3.7 across implementation dimensions.

Future of APIs in FinTech

APIs will continue to gain significance with further advancements in technology and rising integration with emerging technologies, such as super-AI and real-time data analytics, thereby playing a greater role in driving business decisions. Further, a liquidity-constrained economic environment from 2021 to 2023 has intensified efforts to enhance the profitabililty of all initiatives while improving revenues and customer acquisitions. While remaining key enablers of seamless communication, APIs will facilitate FinTechs to improve customer experiences. They will continue to offer greater interoperability and enhanced automation while improving efficiency.

A point to remember is that APIs are essential building blocks of successful industry evolution. Harnessing their untapped potential requires deep understanding of FinTech architecture, technological challenges and ways to navigate them, and market trends. FinTechs must clearly understand their own requirements and the capabilities these APIs can add to augment their offerings. Building lasting relationships with technology partners for continued product/service enhancements and support is key to staying ahead of the curve.

With 27+ years of experience in the fast-evolving payments and FinTech ecosystems, Opus Technologies offers strategic and cost-effective solutions for all the expansion and scalability needs of FinTechs, banks, credit unions, PSPs, and other financial institutions. Through constant innovation, platform-engineering, and DevOps services, we drive growth for our partners, while they focus on offering greater value to their clients. Speak to our experts to learn more.

 

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