Bringing APIs to Marketplaces
By Roy Urrico
Fintechs, open banking and application programming interfaces (APIs) appear to be a winning combination for the foreseeable future. Stimulating the growth and reshaping the future of the financial services industry is a surge in investment in personalized digital solutions.
A recent Research and Markets report anticipates the global fintech market to reach about $305 billion by 2025. Meanwhile the open banking marketplace already generated $7.29 billion globally in 2018 on the way to an expected $43.15 billion by 2026, per a recent Allied Market Research report. Driving adoption: new applications, digital services and APIs.
A number of financial institutions have already entered the fintech realm by offering banking-as-a service (BaaS) products and services — typically developed by trusted third-party vendors and empowered via APIs. These credit unions and banks identified the movement toward embedded financial capabilities early on and opened up respective banking systems directly to software companies to protect against tech competition and to grab a broader deposit share.
A growing number of financial institutions now seek an open-banking/fintech partnership to stay competitive. Many pursue improvement in areas such as mobile banking and payment channels, personal digital assistants, saving and investment tools, fraud mitigation measures, payment processing, and artificial intelligence/machine learning capabilities (including chatbots).
FIs also want upgrades to digital banking platforms to provide real-time and same-day banking services; big data access through open banking programs to provide customers with personal and actionable insights; and robotic process automation to power existing processes.
Prior to open banking, third party developers wanting to connect products to a financial institution’s infrastructure usually had to go through one of the leading core providers and anything that connected to those systems. “If you had a product you wanted to connect to the bank (or credit union), you had to deal with one of those providers,” said David Brasfield, CEO at Birmingham, Ala.-based NXTsoft, which provides API connectivity between fintech companies and financial institutions.
Brasfield added, many times those core vendors made it difficult to connect — to create an (API) to their platform — because most of the time they had a product that was similar to the product the tech vendors were trying to sell to the financial institutions.
Opening Up to Help From Fintechs
Open banking refers to sharing financial account holder data with third party financial service providers through a secure API. However, fintechs and financial institutions in the United States face a variety of archaic, legacy IT infrastructures that can impede implementation of a new solution.
Therefore, partnerships between fintechs and financial institutions become mutually beneficial. For credit unions and banks, a solution offered through a fintech is an opportunity to extend market reach and connectivity to customers and perhaps provide new revenue opportunities. In return, partnering with financial institutions to gain access to financial service APIs and payments capabilities allows fintechs to strengthen offerings.
“Open banking puts the power in the hands of financial institutions and consumers. Financial institutions can implement the services they want and consumers can bank when and where they want, confident that their personal data is secure,” said Brasfield.
APIs can also help startups and vendors with new banking products trying connect with financial institutions. “You could go to Jack Henry. They have a process to certify (new software) and it's anywhere from a six to 18-month process,” Brasfield noted. Those vendors then have to repeat that with some 40-plus different financial services platforms “So it takes you years to create all those bridges that we already have built.” He added, “What OmniConnect (NXTsoft’s open banking API platform) does is serve as that bridge between the bank accounting system and these fintechs that are not part of the core system.”
Brasfield said fintechs depend on NXTsoft, which has created a standard API solution that facilitates connectivity, to provide the link to credit unions and banks. “They (developers) come to us and say, ‘Can you build an API for us?’ And we actually have the core providers as customers as well. For example, Fiserv is one our partners and we've built connectors for them.”
Another use case Brasfield cited is a credit union using Jack Henry’s Symitar core platform. “Anybody that has a product outside the Jack Henry umbrella can utilize a NXTsoft connector to attach (the FI's) core system directly. They do not have to go through all the checks, every protocol to get that hooked up. We already have it built.”
Shopping Open API Marketplaces
With their growing significance, developers need a place to shop for APIs — or shop them to others. API portals, offering either home-produced or template-based tools, were the primary source of APIs for a quite a few years, but have gradually given way to marketplaces.
API portals usually offered positioning for a single API provider, while letting developers integrate and securely onboard with the API source. The marketplace allows developers a one-stop shop for everything from integrated onboarding to features such as security issue tracing.
Typically, an API marketplace comprises several components, including an API manager, gateway, security and developer areas. It collects, categorizes and presents the published APIs. A significant marketplace goal is to use and recycle APIs. Therefore, a marketplace usually ensures APIs are searchable and have the correct categorization connected to them.
The noted marketplace model lets financial institutions continue to provide and develop their central services, but also provides an opportunity to fill gaps from partnerships with carefully handpicked allies.
This approach also levels the playing field for API providers as the marketplace increases exposure for API developers of all sizes, especially those seeking a bigger fintech presence. For some providers, deploying to a marketplace can mean replacing their portals completely. They can also market APIs based on categories and how they interact with consumers, third parties and applications.
However, it is also vital that an API marketplace contain a security component because of the troubling concerns associated with cloud safety and an increase in cyberattacks within the existing cloud API market.
NXTsoft’s OmniConnect Platform is an open banking marketplace for all API needs. Brasfield explained OmniConnect utilizes cutting-edge cloud technology to securely connect fintech solutions to financial institutions, ensuring that its clients have safe and reliable integration.
“Back in the old days (five years ago), (a vendor) would walk into at a credit union and from the credit union would say, ‘Yeah, I really liked what you are selling. The next question: Do you have it connected to our core system already?’ Because they knew the difficulty of making that happen,” Brasfield said. “With OmniConnect, a credit union can look at all their providers and know we already have a connector built.”
Brasfield indicated NXTsoft has connectors built for as many as 40 different core accounting systems including systems from Fiserv, Jack Henry and FIS, with many of them requiring connectivity to multi-core versions. “They all have like five to seven different core systems.”
The NXTsoft CEO explained, “We provide a bridge API into those core systems. If you are a fintech player, and you need to connect into a Jack Henry system or an FIS system, we have a bridge that connects directly to that core system.” Brasfield added that NXTsoft is then able to take the information — such as loan, general ledger or transactional data − and connect that to the third-party application.
In September 2021, NXTsoft announced its OmniConnect standard API solution, which provides connectivity for any U.S. financial institution to any third-party system with a singular API, plus the ability for fintechs to write directly to NXTsoft’s OmniConnect platform. Its growing list of partners includes Kasasa, Abrigo, ICE Mortgage Technology, and BankPoint.
NXTsoft delivers connectivity to over 700 financial institutions, including 230 credit unions, with 2,000 connections in place. The company provides links to 44 active partners through the use of its open API platform. They have connected with financial services systems, customer relationship management (CRM) platforms and other banking systems. Its API platform incorporates five standard use cases that allow for quick integration for partners.