7 FinTech API Use Cases Revolutionizing Financial Services

Payment processing

When you think of fintech, payment processing APIs are likely the first type that comes to mind. They are the backbone of everyday transactions that most people interact with without even realizing they are powered by APIs.

These APIs provide the necessary tools for processing web and mobile payments, managing transactions, and supporting various payment methods such as credit cards, digital wallets, and bank transfers. By integrating payment processing APIs, businesses can offer secure and efficient payment options, streamline the checkout process, and enhance the overall user experience without extensive custom software development.

Ideal for: E-commerce platforms, subscription services, retail stores, and software developers/startups needing online payment capabilities.

API examples:

• Stripe: Takes care of the entire payment process, from transaction initiation to funds settlement, allowing businesses to accept payments from credit cards, debit cards, and digital wallets.
• Braintree: Allows developers to integrate its global payments platform, supporting various payment methods, including cards, wallets, and local payment methods.
• MangoPay: Facilitates online banking transactions, especially in crowdfunding, marketplace, and sharing economy platforms.
• GoCardless: Enables collecting payments via a single integration, including automated payment collection and reconciliation.

Identity verification (KYC)

Identity verification - also known as KYC (Know Your Customer) - APIs are essential tools for businesses that need to verify the identities of their customers to comply with regulatory requirements and reduce the risk of fraud. These APIs provide automated solutions for verifying personal information, such as names, addresses, dates of birth, and government-issued IDs.

They utilize various methods, including document scanning, biometric verification, and database checks, to authenticate users quickly and accurately. This not only speeds up the onboarding process but also ensures that businesses meet the necessary compliance standards without the need for extensive manual verification.

Ideal for: Financial institutions, fintech companies, e-commerce platforms, and any business needing to verify user identities.

Example APIs:

• Trulioo API: Provides global identity verification services to help businesses comply with KYC and AML regulations by verifying customer identities across multiple countries.
• Jumio API: Provides identity verification services using document verification, facial recognition, and authentication technologies to ensure secure and compliant onboarding.
• Onfido API: Offers automated identity verification and background checks by validating government-issued IDs and performing biometric verification to authenticate users.
• IDnow API: Facilitates real-time identity verification through video identification and e-signature capabilities, ensuring compliance with KYC regulations.
• Shufti Pro API: Provides identity verification and KYC services, including document verification, face verification, and AML screening, to help businesses comply with regulatory standards.

Banking integration

Banks have historically maintained a "closed" system, prioritizing security but restricting the real-time financial data aggregation. However, the rise of open banking APIs has transformed this landscape, enabling secure data sharing across approved platforms via banking APIs. This shift in the financial sector benefits personal finance app developers by reducing the burden of building highly secure systems and meeting regulatory requirements, while consumers enjoy a wider array of financial services and tools.

The current phase of open banking, often referred to as open finance, extends open banking principles to a broader range of financial products, including savings accounts, mortgages, and insurance. This wave is also characterized by the participation of non-financial industries and evolving regulatory frameworks to accommodate these new use cases.

Ideal for: Personal finance apps, budgeting tools, multi-bank management platforms, bookkeeping software, payroll systems, and expense management software.

Example APIs:

• Plaid: Allows developers to securely link bank accounts to other applications, without users having to leave their site.
• Syncfy Connect: Enables financial data retrieval directly from the source using Open Finance; imports data from banks, utility providers, digital wallets, credit cards, and major blockchain networks.
• Yodlee: Combines financial insights with data from 17,000 sources and is designed to make transaction data easier to understand.
• MX: Aggregates and enhances financial data, empowering organizations to provide better financial experiences for their customers.
• Finicity: Offers an open banking platform and data aggregation solution, powered by Mastercard.

Virtual accounts

Virtual accounts offer the ability to create and manage multiple virtual identifiers under a single physical bank account. This enables precise tracking and allocation of funds for different purposes, such as managing client funds, streamlining payment processes, and enhancing financial reporting.

By utilizing virtual accounts, businesses can simplify their financial operations and improve efficiency. For example, companies can assign virtual accounts to different clients or projects, making it easier to monitor and reconcile transactions. Virtual accounts also support automated payment processing and collection, reducing manual effort and minimizing errors.

Ideal for: Companies with complex payment and collection needs, financial service providers, and fintech companies.

Example APIs:

• Sila: Allows US users to set up digital wallets with dedicated account and routing numbers to facilitate ACH transactions, wire transfers, and improve cash flow and reconciliation processes for fintech applications.
• Plaid Virtual Accounts: Lets UK and Europe users manage the entire lifecycle of payments, including creating, fetching, listing virtual accounts, executing transactions, and even refunding payments.

Cryptocurrency APIs

The cryptocurrency market is known for its volatility and fast-paced nature, requiring timely and accurate data for informed decision-making. Cryptocurrency APIs enable innovation by allowing developers to build advanced applications that can respond quickly to market changes, automate trading strategies, and ensure secure transactions. These APIs also support regulatory compliance and offer enhanced security features, making it easier to develop reliable and sophisticated digital currency solutions.

Ideal for: Trading platforms, fintech startups, wallet providers, and blockchain developers.

Example APIs:

• CoinGecko API: Provides comprehensive data on cryptocurrency prices, market capitalization, trading volume, and historical data for thousands of digital currencies.
• Coinbase API: Offers access to cryptocurrency trading, wallet management, and real-time price information for various cryptocurrencies available on the Coinbase platform.
• Binance API: Enables trading on the Binance exchange, providing market data, trade execution, and account management features.
• CoinAPI.io: Provides a collection of cryptoAPIs all in one place.

Access market data

APIs that exchange data to provide real-time and historical financial information from various markets, including stock exchanges and commodity markets can facilitate more informed decision-making and strategic planning. By integrating market data APIs, businesses can build applications that offer portfolio tracking, automated trading, financial analysis, and risk management features. Features such as data filtering, aggregation, and visualization tools enhance the usability and value of the raw market data, enabling businesses to offer more sophisticated financial products and services.

Ideal for: Financial institutions, trading platforms, investment firms, fintech startups developing trading apps, portfolio management tools, and financial news services.

Example APIs:

• Bloomberg API: Delivers market data, news, and analytics, including comprehensive financial information from global markets.
• Morningstar API: Provides data on stocks, mutual funds, ETFs, and market indices, along with financial metrics and performance analysis.
• Nasdaq Data Link: Offers a variety of datasets including real-time and historical market data, financials, and economic data.
• Polygon.io: Provides access to real-time options prices, historical data, and news on all major options markets including CBOE, NYSE, and NASDAQ.

OCR and machine learning

Machine learning and OCR (Optical Character Recognition) APIs are transformative for fintech applications, enabling advanced data processing and automation. Typically, OCR APIs utilize machine learning to convert scanned documents and images into machine-readable text, automating the extraction of information from invoices, receipts, and identity documents. This enhances the accuracy and efficiency of data entry, compliance checks, and customer onboarding processes.

Machine learning APIs can also analyze large volumes of financial data to identify patterns, predict market trends, and detect fraudulent activities, providing valuable insights for decision-making and risk management. The combination of these technologies allows fintech companies to streamline operations, reduce manual errors, and improve overall service delivery.

Ideal for: Financial institutions, fintech startups, insurance companies, and businesses dealing with large data volumes and documents.

Example APIs:

• Google Cloud Vision API: Offers powerful image analysis capabilities, including text extraction from documents, enhancing accuracy and efficiency.
• Azure AI Document Intelligence: Extracts information from forms and documents, automating data entry and processing.
• Docsumo API: Uses OCR technology to convert unstructured documents into actionable information; can work with many types of documents in different formats, including scanned images and PDF files.

Read More: 10 Best AI-Powered OCR Tools for Accurate Data Extraction

What risks do FinTech APIs pose for the financial industry?

While fintech APIs offer numerous benefits, they also come with risks that need to be managed carefully. Let’s take a look at some of the key risks that the finance industry is up against:

Security vulnerabilities

Perhaps the most important risk is that of data security. fintech APIs, if not properly secured, can expose sensitive financial data to potential cyberattacks. Hackers may exploit weaknesses in API security to gain unauthorized access to personal information, financial transactions, and other confidential data, leading to financial loss and reputational damage.

Compliance and regulatory challenges

The use of fintech APIs must adhere to strict regulatory standards, such as GDPR and PSD2, depending on the countries they operate in. Non-compliance can lead to hefty fines, legal repercussions, and loss of trust from customers and partners. Maintaining compliance across different jurisdictions adds complexity to API management.

Integration complexity

Integrating multiple APIs from various providers can create significant software development complexity, potentially leading to issues with compatibility, performance, and reliability. Poorly managed integrations can result in system downtime, disrupted services, and a degraded user experience. It’s critical to work with an API development team that is experienced in setting up APIs properly from the start.

Dependency on third-party providers

Relying on third-party APIs can create dependencies that may pose risks if the provider experiences outages, changes their terms of service, or discontinues their API. This can disrupt business operations and require significant efforts to switch to alternative solutions or rebuild functionalities. Like the other risks, this is one that should be considered carefully as part of a broader tech stack strategy discussion.

Performance and scalability issues

Application programming interfaces must be robust and scalable to handle varying loads and ensure consistent performance. Any performance issues or lack of scalability can lead to slow response times, system crashes, and an inability to meet user demands, negatively impacting the user experience and business performance. It’s critical to properly vet and thoroughly test APIs before committing to their use.