What is Finage? | How does a Financial API work?
In recent years, there has been a significant shift in consumer access to financial services. Consumers can now share their financial data with a larger number of financial suppliers whose goods and services can satisfy their demands thanks to the rise of financial APIs.
Financial APIs have paved the way for the emergence of financial technology, or fintech, by allowing thousands of new financial apps and services to emerging, transforming the way millions of people interact with their money. In fact, in 2021, 88 percent of US customers said they used fintech, proving the widespread adoption of what was formerly considered a niche industry. Without financial APIs, none of these new financial possibilities and experiences would be possible.
We'll go through what financial APIs are and how they work in this article.
What is the meaning of API?
Application programming interface stands for an application programming interface. APIs allow separate software systems to communicate and share data, allowing previously segregated data to be used across applications.
For example, if your company uses different software for tracking invoicing and shipping products, an API may integrate the two. You can then use that information to determine when to send items based on what bills have been paid from within the shipping program.
APIs are useful for more than just linking dissimilar systems. The information must be helpful and understandable to the user. Take a look at Hotwire, Expedia, and Kayak, for example. When you enter your search parameters, the site uses its API connections to a range of hotels, airlines, and car rental businesses to aggregate the most valuable information depending on your search and connects you to make a reservation. Not only does the site integrate different data, but it also makes it readable and valuable to you in real time.
What is a financial API?
Different types of APIs exist in the financial realm. Brokerage APIs collect data on the stock and cryptocurrency markets to assist investors in gaining insights and making faster, more educated trading decisions. Yahoo Finance API and Alpha Vantage are two examples.
People can connect their bank accounts to financial services using another type of financial API known as "banking APIs" or "open banking APIs." By allowing new apps and services to be built using safe and secure connections to bank account data, these financial APIs open up a whole new world of financial access.
A peer-to-peer lending marketplace, a used-car payments platform, and an industry-leading rewards network are just a few examples of financial services established utilizing financial APIs—the possibilities are unlimited. For this article, we’ll focus on APIs that connect financial accounts to financial apps and services.
What are the 3 types of financial APIs?
There are three types of financial APIs used in the financial services and banking industries.
Internal APIs, also known as private APIs, are used within businesses (in this case, a financial institution) to improve efficiency, develop products, and manage data more securely. These APIs encourage internal collaboration, save money through automation, and allow for secure data sharing between departments.
Partner APIs establish a data link between two companies. These APIs are frequently used to connect a bank and a third-party partner. Typically, the third party assists the bank in the development of a new product or service, such as a personal financial management tool or a speedier loan application processing system. Jack Henry and Q2 are examples of third-party partners.
Partner APIs assist banks by allowing them to provide better services to their consumers, while third parties profit by allowing them to create products and services using secure financial data from banks.
Unlike partner APIs, open APIs allow various third-party service providers to access financial data rather than just one. Open APIs facilitate the development of useful financial apps and services by allowing banks customers to securely share information such as account and routing numbers, balances, and transaction histories.
Third parties, banks, and customers are all concerned about security and privacy while using open APIs. Finage only shares data with customers with their agreement and uses security procedures that meet or exceed industry standards.
What is the purpose of financial APIs?
Banks create specific endpoints for financial APIs to allow third-party entities, such as app developers or data networks, to access consumer-permissioned data. They achieve this by restricting access to consumer data in order to keep it safe and ensuring that it is only accessible with their customers' permission. Third parties can use these data connections to do tasks like account balance checks, transaction history lookups, account and routing number verification, and more.
There is usually a data network connected with open financial APIs that works as a "API connector" between fintech apps and financial institutions. The fintech app does not need to connect with all financial institutions because the data network does.
Instead, they use the data network as a single integration to allow clients to connect accounts from practically any financial institution to make budgets, buy cars, and fund trading accounts.
The following is an example of an open financial API that allows someone to connect their bank account to fund a trading app like Robinhood:
A financial institution creates dedicated API endpoints that third parties can use to get specific sorts of data with the consent of customers. This allows the data network to connect to that API and have access to user-permissioned financial account data such as account numbers, balances, transaction histories, and other information.
Trading app developers connect it to the open API of the data network. Customers will be able to link accounts through any financial institution that is also connected to the data network as a result of this.
When a consumer of the trading app wants to link their existing financial account in order to fund their account on the app, the data network will prompt them to input their existing account's username and password. If the login is successful, the data network will establish an "API token" between themselves and the financial institution, which will replace the credentials and eliminate the need to store them, lowering risk. This token enables a continuous link between the financial account and the data network.
After the financial institution and the data network have produced an API token to establish a new customer's credentials, the data network creates another token. This new token will be used by the trading app to make "API calls" to the data network. The data network uses the bank API to retrieve financial data in order to conduct an auction that the consumer desires, such as fueling the trading app or withdrawing funds from the app to their bank account.
Why use financial APIs?
Financial APIs are useful for a variety of purposes, including developing innovative financial services and obtaining access to vast markets.
Safe access to data with user consent
Financial APIs offer a secure approach to building financial apps and services based on a variety of financial account data, including account and routing numbers, account balances, transaction data, investment holdings, and more.
When a company utilizes the Finage API to connect this type of data to financial services, they can be confident that the user has provided permission for the data to be accessed and that security methods that meet or exceed industry standards are safeguarding their customers' financial information.
Fast, efficient, and cost-effective financial access
Financial APIs deliver the same services in a more efficient and cost-effective manner than traditional financial services, which generally require clients or workers to trawl through files in various data systems.
To qualify for a loan, a consumer may be required to present bank statements, their income history, and financial details. The customer can share the information automatically, directly from their account, using a financial API. This saves time and money for both the customer and the lender.
This low-cost method of sharing financial data allows banks and fintech to personalize financial services to the specific demands of their consumers. Financial APIs make services that used to take a long time and money to supply more cost-effective and user-friendly.
Financial services that are future-proof
Fintech startups are continually emerging. There were 79 fintech unicorns (companies valued at over $1 billion) in 2021. The majority of these businesses rely on financial APIs and are working to improve the technology. As a result, these rising companies are expected to increase their investment in financial APIs in the future.
Traditional banks are increasingly using APIs to power new apps and services, and many are collaborating with API-based fintechs to do so. Over 91% of banks intend to collaborate with fintech firms to improve their speed-to-market and capacity to service their customers. Financial APIs will be used by banks and fintech companies to do this.
APIs are becoming increasingly used in the financial sector. Those building services with API technology are working with something set to improve over time.
How does Finage support open financial APIs?
Finage APIs are used by over 5,500 financial apps and services. Finage Exchange was established to make it easier for financial institutions to give their clients access to various financial apps and services while also giving them more control over their financial data.
Finage Exchange is an open financial API that enables financial institutions to interact effortlessly with all Finage-enabled financial apps and services. Customers are automatically integrated into a vast financial service ecosystem when a financial institution connects with Finage Exchange, allowing them to effortlessly connect their accounts to apps and services they want to use.
The consumer-first world of financial APIs
People's options for receiving financial services used to be limited. They now have endless options thanks to an API-based financial ecosystem.
People can transition smoothly between mobile banking, personalized budgeting tools, and investment and trading platforms linked to their financial accounts via financial APIs. Thousands of new financial tools have developed as a result of the API revolution, filling various holes in people's financial demands and paving new paths to financial freedom.
API-based financial services have created a connected financial ecosystem. People no longer hold all of their accounts, investments, loans, and financial tools with a single institution, but rather through a web of connected services and platforms (which are easily connected to their main financial account through APIs). Because of the possibilities that financial APIs provide, consumers may now demand more from their financial goods and services.
We hope that this blog post will be beneficial for you. We will continue to create useful works in order to get inspired by everyone. We are sure that we will achieve splendid things altogether. Keep on following Finage for the best and more.
You can get your Real-Time and Historical Data with Finage free API key.
Build with us today!