If you look at the financial category of the ProgrammableWeb directory, you’ll see approximately 1,700 Application Programming Interfaces (APIs) listed. Further, there are also about 1,200 listed in payments. E-commerce has 2,500, government 1,150, and mobile 2,450.
This current trend in FinTech can be attributed to the industry revolution that was launched by Xignite. #FintechRevolution API ecosystem is comprised of 21 companies that form a consortium to support and connect developers with the best-of-breed financial APIs.
This is mainly due to the fact that many financial business innovators and startups usually lack an API strategy (it usually consists of either a private API, an open API, or a white label offering).
What’s an API?
A software program that allows other programs to interact with it is known as an application programming interface or API. It essentially allows you to access the backend functions and data of an organization.
A white label offering on the other hand is basically an unlabeled package that companies can purchase from a provider. Once bought, it can be integrated into existing processes and offered to clients (by including your own logo). But at the same time, customization is quite limited to a superficial level.
When it comes FinTech and Forex trading, an API will be used to enable the trading platform to connect with the market where an execution will occur. As a result, proprietary APIs are offered by most major Forex brokerages.
So What’s the Difference Between Open and Private APIs?
Open APIs are difficult to define properly as the jury is still out on that point. But the key here is that regardless of whether it’s proprietary or private, it will only be accessible to in-house developers and customers.
Further, modifications and security issues will be controlled and monitored. In contrast, linking to an Open API (regardless of whether it’s a business or a developer), doesn’t need a customer or need to login into the provider site.
Instead, it sits on the ProgrammableWeb that’s similar to open-source Linux OS. As a result, a central control will manage security issues and software development.
Focusing on FinTech, you have to look at it in terms of two broad types of businesses:
- Broader businesses with a robo-advisory offering
- Standalone startups with a robo-advisor
We can also break down robo-advisors further and distinguish them in two separate clusters that are very much involved in robo-advisory:
- Robo-advisory business without brokerage and/or custody services
- Robo-advisory business with brokerage and/or custody services
A robo-advisory or adviser can be defined as an online wealth management service that provides the automated algorithm-based portfolio management advice without any input from human financial planners.
Most businesses in the second category are now adopting the API movement around their robo-advisory business with a white label offering. Here are some great examples of this phenomenon:
White Label & API Offering (Multi-Asset):
Only API Offering (Equities):
If you take a closer look, most without brokerage and custody utilize white label over an API approach. However, the white label approach was adopted by AdviseOnly, NextCapital, Money on Toast, and Sig Fig.
As far as the Open API movement goes, Hedgeable is expected to lead the way as a robo-advisor that offers retail clients an opportunity to buy bitcoin.
From a Private API standpoint, Wealthfront is leading the way focusing on direct customers and not advisors. The current incarnation, Wealthfront 3.0 includes direct integration with the following platforms:
- Coinbase (bitcoin wallet)
- Bank accounts
- External brokerage accounts
- Lending Club
- Redfin (online real estate firm)
- Venmo (digital wallet that allows you to share payments)
All these integrations are only possible because of private API access. Right now, most of the financial APIs are focused on crypto-currencies, but most open financial APIs are related to banking, brokerages, and payments.
In the near future, you can also expect to see a lot more focus on API-driven platform-ization and the use of virtual meetings.