The Dark Side of APIs in FinTech: Why Duplicates Slow Down Innovation

By Alexander Vityaz, CEO, Corezoid, Head of E-Business, PrivatBank

The growth of API usage in IT has been deservedly incredible, and I believe APIs are especially capable of providing value and utility in the FinTech sector. From the introduction of the API concept first described by Roy Fielding about sixteen years ago, to the millions of APIs that today grant easy access to the resources of the companies offering them, APIs have delivered nothing short of a true IT upheaval. The way that APIs enable businesses – FinTech or otherwise – to communicate with each other, build new services, and automate processes has been responsible for many of the technological achievements we all benefit from everyday, whether we realize it or not. 

But APIs are not without their issues. Getting momentarily more technical, an inherent trouble spot with APIs is that it is necessary to generate duplicate hard code for every language for which the API is available. The more clients a business has, the more multilingual copies of the same code need to be supported, all of which simply solve the same problems. APIs also have the major technical issue that different APIs work at different speeds. Maybe one API can withstand a load of 100 requests per second; another can only handle 30 requests. Because of this, developers are required to create “buffers” in addition to implementing the hardcoded logical binding for the APIs they use, to try and synchronize those APIs and resolve contention between communicating service components. Bottom line: APIs can still take a lot of time to make work, and they may not always play nice with one another. 

Given the technical challenges that remain, APIs – and the FinTech world’s necessary utilization of them – is due for a second revolution: a transition from APIs to API-based processes. 

An API is not a product. A process is a product. 

APIs are not the last stop in the evolution of how we achieve communication between different pieces of software. For the next step beyond APIs in our collective approach to software development, the ultimate dream is a solution that is independent of specific programming languages, and can be easily scaled, copied, and changed. We need to change our paradigm to distributing not APIs (which of course still require hardcoding and work on behalf of businesses to get the functionality required out of them), but ready-made processes themselves that can be fully integrated into a bank’s systems with plug-and-play ease. This is a vision shared by analysts at Gartner, who anticipate an economy of algorithms where processes (like a P2P payment service) are purchased as specific tools that enable certain actions and plug straight into the core of a bank’s platform. 

This future based on ready-made processes presents an interesting value in the FinTech space, where technology is paramount and API-based services have the potential to transform the industry. Bruce Wallace, COO of Silicon Valley Bank mused, “We view API banking services as a natural progression in how our tech-savvy clients want to work with their banking partners and service providers.” In much the same vein, Digital Bank author Chris Skinner has said that “putting everything into an [API] is how Facebook, PayPal and others are working today and, if they did not, they would be dead. It’s the functionality that is key, and letting API capabilities allow anyone to leverage that functionality is going to be the real way for banks to increase their economic value in any economy.” 

The value of APIs in FinTech is undeniable, and the ability to deliver all they can offer through ready-to-work API-based processes should only multiply that value. Helping to lay the groundwork for this environment where any FinTech company might quickly add new functionality by way of an API-based process, Visa and MasterCard have each confirmed their commitment to pen APIs. In 2015, MasterCard announced its Open API Declaration, and Visa followed suit in February 2016, opening hundreds of APIs via developer.visa.com. Visa has made available APIs for working with exchange rates, web interfaces, card scanners, geo-location, and many more solutions. 

However, because banks are not naturally IT companies and because APIs are not finished products, open APIs still leave work to be done in order to implement these banking solutions – work that many banks are still not equipped to perform. And those banks that do perform this work do it expensively, and with each bank doing parallel work to create redundant solutions. But, as opportunities to instead use ready-made processes become more available, more banks and other FinTech entities will have better access to these solutions, and the savings and efficiencies that come with them. 

In the near future, don’t be surprised to see any bank in the world able to easily obtain “off the shelf” solutions for providing P2P payment services, online banking, a mobile banking application, and more that are based upon processes where, under the hood, thousands of FinTech APIs are furiously (but seamlessly) at work.

Read at the International Banker.