APIs are often viewed as potential solutions for traditional financial institutions, particularly small and midsize banks, to partner with upstart financial technology companies (fintechs) to offer innovate products, especially to low-income customers. In practice, however, due to the maturity of the fintech market, fear of losing competitive advantage, and a variety of strategic errors in planning for and developing APIs, smaller banks and fintechs do not often succeed in deploying API solutions for inclusive finance.
In this report, based on nearly two dozen interviews with leaders at fintech companies, small and midsize banks, and large financial institutions, CFI Fellow Dan Kleinbaum, examines the extent to which APIs are meeting their potential to facilitate bank and fintech partnerships that advance financial inclusion. Dan breaks down what API integrations between banks and fintechs look like and how typical deployments work. Finally, he offers four recommendations for how to improve API deployments between banks and fintechs to deliver financial services to underserved communities.
A Typology of APIs
It is useful for leaders at financial institutions to understand the types of APIs common in financial services. For examples, in API aggregator and platform models shown below, a third-party provides APIs on behalf of financial institutions to institutional customers (e.g., fintechs) in its network. The aggregator or platform may also provide sales, marketing, onboarding and other services. We also explore open and private API models in the report.
API Aggregator and Platform Models