Over the past few years, the use of application programming interfaces (API) in fintech has completely revolutionized the commercial lending industry as we know it. In fact, application programming interfaces have become such a mainstay for European banking that 97% of these banks currently use APIs. API use among American banks is much lower, but researchers predict rapid growth over the next few years. American banks that are already using API technology, have a clear competitive advantage over other lenders.
How APIs are Used
APIs create a bridge between multiple platforms and data sets, using third-party applications. The process is known as open banking and is rapidly spreading.
Banks rely on APIs to provide consumers additional services. In the commercial lending world, this can range from automating the business loan application process to allowing business owners to submit payroll or cash flow information with the press of a button.
How API Technology Impacts the FinTech Industry
Hesitance around the adoption of API has centered on data privacy concerns. However, users who share data across platforms can leverage data for their own purpose, while also deciding what to allow lenders to access. In return giving users a personalized service from financial institutions.
Synergy is a crucial principle embraced by companies that aim to improve efficiency. Similarly, data plays an indispensable role in automating business processes, which also contributes to efficiency. API allows business owners and lenders to leverage data to take better advantage of it. For instance, companies can sync bookkeeping software with bank accounts to automate the general record entry process. This integration makes achieving synergy more possible.
Forbes estimates that workers spend more than a month’s worth of productivity, each year, by moving between multiple apps. When lenders integrate apps, they can create a more centralized experience that reduces the need to move between programs. This, in turn, may even reduce the hardware requirements for the company and lower its overhead costs. The reduction in interruption to work processes may also help to boost employee engagement and focus.
3. Credit Analysis
Not every business can earn approval for loans on conventional terms—many of those end up defaulting on loans because banks look only at traditional requirements. The use of API in fintech provides lenders with easier access to additional data. Lenders can then use this to create a more sophisticated formula for analyzing creditworthiness and exercise greater flexibility. Fintech lending can also result in more favorable rates for business owners due to deeper scoring models.
4. Customer Experience
Companies are coming to terms with the fact that customers now have a different relationship with brands, products, and services than they did ten years ago. The use of API allows companies to provide additional products and services through third parties that may not otherwise prove possible. These expanded services make it easier for lenders to satisfy the growing needs of customers.
5. Data Privacy
There are certainly some privacy concerns when using APIs to sync across platforms. Any data uploaded to the internet can become vulnerable over time. However, APIs also allow business owners to maintain full control of the data supplied and stored. This should come as no surprise considering that the rapid growth of API use began in Europe, which created the first large-scale data privacy laws in the world. Moving away from manual data processing also allows lenders to maintain better data integrity and compliance.
The Best FinTech APIs
When it comes to specific APIs, lenders, business owners, and consumers have their own opinions on which ones rank among the best. Instead of looking at the best fintech companies or brands, it is often more beneficial to consider functionality. These are some of the many functions that will continue to take fintech to the next level:
- White-labeling, which makes it easier for even smaller companies to introduce API
- Payment processing, to increase payment options for merchants
- Peer-to-peer programs for acquiring capital and sharing files
- Identity confirmation that moves away from passwords and toward biometric data
- Investment management, which helps financial advisors get a clearer picture of portfolios
Is Your Lender Utilizing API?
Forbes estimates that only 53% of credit unions and 21% of regular banks have incorporated API into their financial technologies. The larger the bank, the more likely they are to have introduced this technology. So, how do you find lenders within your niche who can provide you with all the benefits afforded by API?
Most companies using APIs will state this clearly in some way or another. If you come across a company offering faster approval times than traditional lenders, the chances are that they use APIs. As a tech-enabled lender, LQD Business Finance utilizes API technology in the underwriting process to accelerate the application process and disburse funds three times faster than conventional lenders. LQD Business Finance also utilizes APIs to offer business owners competitive rates and automate many in-house processes.
APIs are behind some of the greatest successes and it has played a crucial role in overcoming some of the biggest obstacles. Find out how leveraging LQD Business Finance API-powered lending experience can help you take your business to the next level. Apply for a business funding solution with LQD Business Finance today.