API Business Models

API Economy in Financial Services


In today’s highly competitive environment, organizations are continuously seeking to increase their growth opportunities, improve their client experience, reduce costs and enhance operational efficiency. Institutions across financial services are embracing APIs to meet these challenges, and to improve the flow of data and information across operations. In turn, APIs open communication channels between programs and, in doing so, enable digital transformation without a full overhaul of legacy infrastructure. As fintech companies continue to develop modern technology solutions, APIs allow organizations to seamlessly integrate these updates within existing operations. In today’s world, where there is an expectation that the speed of innovation no longer sacrifices customer satisfaction or experience, it’s important for traditional institutions to be able to keep pace. This talk covers the relevance of APIs in the financial industry, case studies and how businesses can embed financial services in their existing products and become fintech ready.

I am Siddhant Agarwal and I work as Developer Relations Lead at Open Financial Technologies. Let’s start with a brief introduction about Open Financial Technologies. At Open, we are building Zwitch.io, an embedded finance platform. We firmly believe that financial services are a means to an end, not an end in themselves and that it is only a matter of time before a majority of them will be delivered contextually within an existing product or service, driving better engagement, retention, monetization or process improvement in the concerned product or service that we’re talking about. So I’m going to talk about how APIs have transformed the entire FinTech domain, the entire financial services industry, and how this revolution actually started off with APIs. I’ll also go over a couple of examples and case studies and how this would be really helpful for not just FinTech companies, but also for the non FinTech companies. 

Before talking about how APIs are transforming the financial services domain, I would like to touch upon what API economy is, how APIs influence the banking and financial services industry. In today’s competitive environment, firms seek to increase the growth opportunities to improve their client experience, reduce costs and enhance operational efficiency. To solve this common problem and get moving faster, APIs have opened up new opportunities in the FinTech industry to offer innovative banking and financial solutions for companies to integrate financial functions within existing operations very seamlessly. What API economy refers to is the exchange of value between the consumers and providers with the help of APIs. In other words, it denotes how APIs help achieve positive profitability for businesses. To accomplish this, companies can use APIs to create new revenues by transforming existing products or services. We’re not talking about creating new products but how the existing product can be transformed, which can generate new revenue or additional sources of revenue. So APIs have killed the wait time that goes into building products or services from scratch. 

But you must be wondering, if APIs have been here for decades, what’s so new about it? Why is there a sudden growing interest in APIs at this point of time? The primary reason for this increased interest is the stellar growth in cloud computing, the advancements and adoption of cloud computing have empowered companies to quickly and easily integrate APIs into their products and services. Over the past decade, the innovative power of APIs has led to the realisation that APIs can be a critical component for enterprise solutions and how it can really impact business’ bottom line, or growth and innovation. 

Let’s take a couple of examples to understand API economy a little better. Considering an example of a cab aggregator, like Uber, or its Indian counterpart, Ola, these apps have disrupted the entire transportation industry without even creating the large part of underlying technology powering them, that is, Google Maps, right? So they’ve enabled customers to book a cab with ease in just a few smartphone taps, without having to build its mapping system by simply combining Google Maps APIs with their proprietary product. So all they did was take Google Maps APIs, and integrate it with their own product. That’s it. Furthermore, you can check your vehicle availability, you can confirm bookings, you can make payments using credit card or receive notifications of arrival. And all the credit goes to the APIs at work over here.

Now let’s understand how the APIs are functioning in a multinational fast food provider like McDonald’s. So when you crave a burger these days, you have two options to order it from. So rather than visiting the nearest outlet, you can either order it on the MacDonald’s app or order on a food delivery app. If you think about it from McDonald’s perspective, the most cost effective and easily scalable option would be to order the burger via a food delivery app. There, it will save them the real estate costs, customer acquisition costs, and operational and delivery costs by partnering with food delivery apps and services, however the only downside being that they might have to share a part of the revenue with the food delivery app. Again, all the credit goes to the APIs at work that are doing the action behind the scenes. These programming interfaces have helped companies like Uber or food delivery apps to work together with millions of businesses to create more revenue than either of them could get if they have been doing this independently. So this is how APIs have been transforming various industries in the current times. 

But how do APIs power FinTech? Let’s dive into that aspect now. We’re talking about the banking transformation, which is driven by APIs these days: rather than reinventing the wheel, the use of open APIs has enabled third party organisations and developers, the FinTech service providers, to build apps and services around the financial institutions, which is our banks’ existing architecture. So what is happening is, the FinTech service providers are building on top of what the bank’s architecture is. The focus in today’s agile environment is on providing solutions directly to consumers through innovation and better user experience. So earlier, the traditional banking infrastructure used to be a closed ecosystem. Your savings accounts, your current account, those were in the exclusive purview of the banks. The banks only provided standard banking products like these, like loans, like credit cards, recurring deposits, fixed deposits, forex cards, etc. And later, even banks started to adopt this strategy to allow consumers access banking services via websites or apps. The API driven economy has transitioned the traditional banks from just being financial products builders to financial solutions orchestrators. They have adapted to a customer centric world by modernising the core banking systems and FinTech organisations. So what is happening is that by embedding financial services, banks and companies can learn valuable information about the users, making lending and insurance more efficient, while enabling providers to offer more targeted services. The more data there is, the more efficiently this process works. This means that in the future, we are likely to see a redefinition of how merchants interact with customers. Maybe they are offering personalised banking, maybe discounts on banking, based on your banking behaviour, as far as maybe accurate loans. It’s a win/win for everyone involved, banks benefit by white labelling their services, consumers benefit because purchasing is a lot more seamless and convenient and merchants benefit because conversions increase and costs are often a lot cheaper. So APIs enabled banks to become data driven institutes that provide a broader range of products directly to customers from the platform of their choice rather than by restricting them, which used to happen in the earlier days. So to their customers, APIs have tied the banks and the FinTech companies together by allowing banks to exchange data with API banking service providers. In this way, FinTech companies can support their existing products and develop modern solutions on traditional banking infrastructure. I’m not saying the banking infrastructure will go away, the traditional banking system infrastructure will still continue to exist, it is just that the banks now have wider platforms to reach out to more consumers through these FinTech companies because they have a larger database. These products and solutions can be seamlessly integrated with other organisations using APIs. 

Let’s understand how the behind-the-scenes action is happening, how banking as a service is happening. We will break it down into two steps. First one, banks develop APIs for their products and services, and externalise them so that a partner, who could be a third party, a technology service provider, or a banking service provider, can use those APIs. And through APIs, banks will pretty much govern the product the same way as in the McDonald’s example. McDonald’s is pretty much governing the product, while the food delivery app is provisioning it to the consumer.

So as part of Step two, what happens is once the bank exposes APIs, third parties consume these APIs and launch their products, they can launch a neo bank, they can even offer those APIs further to end-customers. So that’s what embedded finance is all about. So they can think of doing this on their own as well, they can integrate with the banking API directly, but efforts will increase if the merchant wants to add multiple banks. Alternatively, a merchant can use a payment aggregator or a third party service provider’s API to integrate with multiple banks. It’s all interconnected via APIs. 

How can banking and financial APIs help organisations to gain benefits? You can have improved customer experience, you can make continuous innovation, you can launch products to market faster, you can realise more revenue opportunities more quickly, and many more with less costs. That’s where Zwitch.io is helping businesses build their banking services by embedding financial products like UPI, your insurance, your credit line, payments, cards, bank accounts, compliance, investments and payroll in the user journey. Transforming the embedded finance model enables these businesses to give a wide range of banking options to their customers, making the product stickier. So hence customers interact a lot more with the product and end up doing banking activities through it. It will help businesses earn more than just the platform fee for the customers. With such APIs, businesses can open virtual accounts, they can open up current accounts or savings accounts for the customers on the go. They can collect payments from customers seamlessly via UPI, NEFT, IMPS or RTGS. They can reconcile incoming payments from multiple customers, validate via KYC data and bank account details of a customer instantly and much more. 

What is important here is how embedded finance is the new thing that’s gonna come up in the next few years. You can build your own banking platform, your own neo bank with all these APIs. It’s pretty simple. 

Moving on next, let’s talk about what the future looks like. The ultimate goal of the API economy in financial services is to meet business challenges, facilitate the creation of user focused apps that support line of business goals and improve the flow of data information across operations. The emergence of API driven platform economy will drive significant changes across the financial services domain. APIs will become tools that allow FinTech companies to enable connectivity between traditional banks and the consumers, while inspiring innovative developers to create new products, improve existing services and work more efficiently. Think of the possibilities that are unlocked with these APIs, you can think of creating a neo bank for the underserved, like LGBTQ or maybe for women or for underprivileged. Think of building FinTech solutions via APIs.

Q&A Section

Q: With the account management in the backend, and where the accounts are actually stored, do you support a range of different banks, core banking solutions? Or would you need to then go and have some development effort to wire these APIs up to where the account management and product management and customer management sits? 

A: No, actually not. We have done the hard work for the businesses. So think of it as the intersection of a business who wants to embed or offer financial services, and the traditional banking institution, so we just lie at the centre of it. So we are helping money moving in and money moving out via these APIs. We have already integrated with the banks with which we consume bank APIs and we later expose our APIs to businesses to build their own solutions, so they can come up with their own white label neobank of their own, instead of doing the hard work of reaching out to the bank, and oftentimes, the banks will say no, because you don’t have a credibility. Banks will ask you for security. So the small businesses who really want to reach out to their consumers and build their own FinTech arm, but don’t have enough bandwidth or don’t have enough credibility to reach out to the banks directly, they can reach out to us and take our APIs and serve the purpose.

Q: Would somebody who was coming along and used these get the ability to select and know about the financial institution and potentially be able to build up a portfolio view of different accounts that your customer has?

A: Yes, we have already integrated with other banks. So let’s say if tomorrow your business asks us for the current account API from x bank, we can easily enable that for them. On the backend, we will enable the banking integration for this particular bank for you.

Siddhant Agarwal

Siddhant Agarwal

Developer Relations Lead at Open Financial Technologies
Siddhant Agarwal currently works with Open Financial Technologies as "Developer Relations Lead" where he is building Zwitch.io, an embedded finance platform which helps businesses create new avenues by embedded financial services using Zwitch's banking API's. Previously, he has worked as Program Coordinator with the Developer Relations team at Google in India. As part of his role at Google, he had led the Developer Student Clubs program, TensorFlow User Groups, Google Developer Groups, and Google Developer Experts program in India. He also designed and executed the initiative “Build for Digital India” in 2019 launched in collaboration with the Ministry of Electronics & Information Technology, Govt. of India which witnessed 7K+ students participating and building solutions that “Solve for India”. Siddhant is one of ACM’s Distinguished Speakers among 200+ speakers worldwide and 20+ in India. A design thinker at heart, he loves working with startups and helping them scale in UX and improve their designs. With over 6 years of industry experience, he has found his passion in ed-tech initiatives, community building, design innovation, startup ecosystem and building for the next billion users. For his contributions in community building, he was also nominated as one of the finalists of CMX Community Industry Awards 2021 for "Community Professional of the Year for a Developer Relations Community" and "Community Professional of the Year" categories. Being an avid public speaker, Siddhant has spoken at more than 200+ national and international forums impacting 90K+ students/developers/individuals in the last 5+ years.

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