API Economy as a Key for the Success of Banking and Finance in the Future

Application Programming Interfaces are an integral part of the emerging digital space. Without them, benefiting from many of today’s habitual financial services would be at least difficult if not impossible. In this piece, Andersen’s experts in FinTech software development will tell how API-based IT solutions contribute to the success of banks and financial organizations.

A brief outline of API technology

APIs allow FinTech companies to make data and features of their applications available to external custom software development companies, business partners, and internal departments. Thus, services and products interact with each other using third-party data and features via dedicated interfaces. The implementation of API protocols is required for looking up the weather forecast in real-time, making a bank transfer, reading text messages, and more. 

RapidAPI Developer Survey 2020-2021 attests to the popularity of this tool. Namely, 61,3% of software development companies said that in 2020 they had used APIs in their work more frequently than in the year before that, while 71,1% of respondents were planning to increasingly use them in 2021. Over 58% of organizations consider implementing the API economy model to be their highest priority. In their view, APIs are mostly used in Telecom, Healthcare, and Finance. 

Rest APIs remain a dominant technology, and there is also a growing interest in Websockets, Serverless & FaaS, gRPC, etc. For example, in 2020, the usage of AsyncAPIs and GraphQL increased by several times. The larger a company is the more internal services and communication protocols it uses. For example, 40% of major companies employing ten thousand people and more reported that they simultaneously use over 250 internal APIs. Three in four companies are inclined to rely on their own solutions while reducing their dependence on external products.

The following infographics represent API market segmenting by industries based on the above survey.

The API market dynamics

According to MarketsandMarkets, the global API management market will reach $5.1 billion by 2023 growing by nearly five times compared to 2018 and at an average annual rate of 32,9%. The forecast by Adroit Market Research, in turn, states that the global API market growth will surpass $21 billion by 2028.

Tools for API platforms, analytics, and security are increasingly used thanks to the advancement of mobile technologies. This motivates companies to develop their solutions for internal and external use. 

The above two pieces of research underscore the advantages of cloud technologies compared to the on-premises approach when a company uses its own data centers. Cloud technologies reduce companies’ expenses and speed up product development.

North America is the main region for the development of API technologies. There, API-related technologies are commonly used, vendors supply API management solutions on a massive scale, technology is constantly evolving, and there are skilled and knowledgeable experts. 

The rapid API market advancement is projected in the Asia-Pacific region with its technological leap and increased number of users.

APIs are most commonly used in Telecom, the IT sector, Banking, Finance, Security and Insurance, and public administration. The Banking and Finance industries are constantly looking for cutting-edge, flexible, and efficient tools for providing their clients with digital services. Numerous are developed by large organizations at a faster rate than by small and medium businesses.

The main global market players are Adobe, IBM, Oracle, Google, Red Hat, Software AG, Microsoft, SAP SE, and others. These are mostly US and European companies.

The API economy structure

Some companies following the global API trend don't fully understand how the API economy structure is organized. Thus, their API implementation strategies are inconsistent and fragmented.

• The API economy is based on the following pillars:
• the right approach to API adoption;
• the choice of the right technology;
• API development management;
• the establishment of an ecosystem. 

Let’s consider how the above stages are implemented within Banking, Finance, Security, and Insurance.

The right approach to API adoption

Companies implement a business-driven approach to API management based on the adoption of Payment Services Directive 2 (PSD2) and Open Banking. These regulatory policies allow external financial service providers access to banking data, transactions, and other financial data of banks’ clients and financial institutions via APIs. 

The above approach is based on the API-first mindset and the top-down approach. The former suggests shifting a company’s business and IT processes to applying key API management principles. The latter requires that any solutions are made and the main channels of communication with clients are established via APIs. 

API reusability allows companies to develop their products based on already existing solutions. This principle substantially speeds up product launches and allows companies to get ROI faster. 

To implement the right approach to API adoption, financial institutions must change their organizational policies, ensuring communication with their clients and within their organizations mainly via APIs. Financial institutions can develop them in-house, order them from software development companies, or use open-source solutions.

The choice of the right API technology

The choice and comprehensive implementation of a suitable technological solution is another crucial factor for establishing the API economy. This stage is required to build the production environment. As a rule, companies consider the following tools and technologies:

• API management platforms are the core of an entire API management system allowing organizations to establish data security policies, choose communication protocols and repositories, and get data analytics;
• Microservice architecture is a decentralized system for data processing and storing. Thanks to it, companies perform the needed operations and establish communication protocols within the IT architecture of their solutions. Thus, each API is functioning independently, is easy to develop, and is testable and secure;
• API management catalog is a cataloging system that stores information about APIs for their subsequent reuse or for the development of new APIs;
• API monitoring technologies are used for efficient platform and service management, collection of statistics, and managing systems’ performance and user access.

The following infographics represent API architecture.

Companies face the challenge of choosing the right platforms for ensuring their production and communication processes, organizing efficient and harmonious microservice structure, and establishing effective API cataloging and monitoring. To do so, businesses look for reliable finance software development companies that specialize in API development and implementation.

API development management

This stage of the API economy implementation involves the adoption of Agile practices for API development management. The following development teams are responsible for API development:

Central teams manage API software architecture and processes on a platform level, establish use standards and patterns, and work with API-related tools, defining API development strategy.

Business unit design teams coordinate the interaction of API processes and standards within departments. They manage API development based on legislation and company rules within their industries, e.g. Finance, Insurance, or Banking. For these purposes, API capability centers are established.

Finally, delivery teams whose work is based on DevOps principles finalize a product. They rely on strategic principles and standards outlined by central teams, and on developments achieved by business unit design teams.

Successful API development and implementation lie in the efficient distribution of tasks between different teams, as well as in the interaction of customers with the key FinTech development specialists on a project.

Building of API ecosystem

To ensure the stable functioning of the API economy within an organization it needs to establish an ecosystem where API solutions are included in its production and marketing strategies as a key element of the infrastructure. The API ecosystem establishment implies using of developer portals for efficient support and transparent document flow.  

It's recommended that an organization’s specialists would participate in technical conferences, meetups, and hackathons where new ideas for the development of API banking solutions are generated. After all, businesses should implement advanced, user-friendly, and innovative software products to stay competitive in fast-evolving markets. 

A consumer-first approach is also crucial for building a productive ecosystem. It implies paying attention primarily to the development and improvement of services that are used by an organization’s clients and business partners most.

Finally, companies successfully monetize their API ecosystems by leasing their tools, adopting new payment methods, and enhancing client support.

To sum up

The API economy is the future of companies in the Banking and Finance industries. API solutions help businesses to interact with each other at a new level establishing efficient and convenient communication. 

At each of the API economy levels specified above, companies face the challenge of choosing the right API development and management strategies. Cooperation with top-rated finance software development companies will help companies solve this problem.