Why APIs matter in Fintech

It's getting harder to turn around in finance, especially fintech, without bumping into some reference to APIs, or application programming interfaces. Why do we normal folks have to worry about APIs? Aren’t they for the tech guys?

APIs basically lay out the rules for how one application can talk to another.

As Susan Joseph pointed out on her post around Marketplace Lending, the API is critical because it communicates information about the loans. Marketplace lending is unique because it offers its’ investors a deep dive into important data. This means, in practical terms, you have a lot of good information about the underlying loan, you know what you’re buying and can plug that API communicated data into your own investment model.

Amit Goel recently talked about the Payments APIs that Rocked 2014

The payments industry is embracing a range of disruptive payment systems that are changing the way we pay, especially as digital payments become mainstream. But the core of the payments systems is something that should not be ignored. A large number of developers is coding away to develop the next generation of payment experiences. All of this is supported by powerful APIs that payments companies have specially designed to enable the creation of digital and futuristic platforms for payments innovation.

For what I call the Asset Originators (think Supplier Networks, eInvoicing networks, B2B Networks) and their third party sources of capital (think asset managers, factors, commercial financiers, asset advisors, brokers, etc.) APIs will matter deeply. The key questions will become what information these assets originators can share, what are the privacy rules around what they can share, and how efficient they can be feeding new underwriting and risk models. Today, we are just scratching the surface as non bank providers dance with the technology vendors.

For example, Intuit’s QuickBooks Online sits on a mountain of data about small business. That data can be used to not only do transactional finance but relationship lending. Building better underwriting models with that data is quite useful.

The trick of course is once you have the data (and hopefully its good data), from an underwriting perspective, there is a huge amount of scrubbing that needs to be done. How deep that data goes will go a long way in determining the success of certain business models.

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Photo courtesy of European Circuits Ltd, http://www.european-circuits.co.uk/

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Voices (2)

  1. ravi:

    Good article about the API.

  2. Sara:

    Great point on APIs and Fintech. Payment API’s have dominated 2014 and now stock market is getting hit with API’s too. I ran across Tradier

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