From KYC To Payments: How APIs Are Shaping India’s Financial Ecosystem

API banking is the latest buzzword in financial circles, allowing customers and investors to transact seamlessly without having to toggle between the software and the financial service provider.  

APIs play a crucial role in building a data-driven financial ecosystem.

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Application Programming Interface (API) makes use of digital codes for communication between software, allowing a seamless data transfer between different systems with a secured integration of the data. An example of the use of API can be seen when you use a UPI service on your phone. UPI service apps often utilise the partner bank service provider’s software to seamlessly dip into your bank account to make payments. Each transaction on such an app is unique as each of your desired purchases would differ based on your needs. 

So, the bank service provider caters to you by catering to UPI apps in line with the services provided by the company that is selling the product. It is in a similar manner that APIs are determining new ways to transact in finance and have made life easier.

API banking is the latest buzzword in financial circles, allowing customers and investors to transact seamlessly without having to toggle between the software and the financial service provider.  

APIs are enabling wealth management companies, banks, etc. to function seamlessly, having made the KYC process easier. Also, taking a loan and making payments can also be done effortlessly now. Through APIs, customers lend money, borrow money, invest in stocks, bonds, mutual funds, etc. easily through the interaction of partner service providers. APIs have helped build marketplaces and facilitated commerce.

The benefit of APIs

The use of APIs is spearheading the evolution of India’s financial services industry in many ways. It has helped improve collaboration with partners, accelerated Innovation in the sector, and provided access to consumer data with an improved customer experience across all transactions. At the end of the day, better connections make for better innovation, resulting in customer delight. 

Easy onboarding

APIs allow financial institutions to make the onboarding and account opening process completely digital and easy for their customers eliminating physical signatures, reducing the burden of paperwork. APIs have enabled customers to check and compare products without any hindrance. It has made the functioning of the insurance and loan marketplaces seamless.

Fuelling marketplaces of financial products

APIs have fuelled several fintech and other tech platforms to provide financial products embedded along with their core products/services giving customers convenience.

It also has enabled several financial product aggregators to increase the spectrum of products/services.

For consumers, the benefits of using products built on financial APIs are abundant — making financial transactions convenient and secure yet giving them the right to choose. 

As possibilities with the integration of APIs in finance grow, it is no wonder that consumer expectations for financial services are changing. 

APIs have truly transformed the banking world, managing investments, managing risks via insurance, etc.

Payment

Apps like Google Pay and Bharat Bill Pay have resolved issues for customers with just a click. They have made it easier to pay for mutual fund products and utility bills, buy an insurance policy, share content and data between companies, perform KYC, and make payments for various other financial services.

Online shopping has become easier with affordable EMI options. APIs have revolutionised the shopping experience with banks, credit card companies, UPI apps, etc. working seamlessly together.

Customers not only get more choices on how to access and use their financial data, but they are also provided with a plethora of tools to help save, invest, budget, earn rewards, and achieve their desired financial status.

Compliance

Financial services/markets are extremely regulated and APIs help them to meet a high level of compliance. It is a priority to first confirm the identity of the user. The API ecosystem offers robust verification techniques not only to promote user data but also to further business, also servicing the great world of data science.

For several fintech companies, connecting with financial account data via APIs provides stability and dependability. It gives such firms more power to create innovative apps, based on consumer-permitted data, and makes it easier to enter into new markets, or even create them.

APIs spearheading digital transformation

The adoption of fintech on a mass scale and record-setting investments have revealed that the fintech revolution is just gaining steam. The ongoing shift to an API-based financial ecosystem means that financial data is accessible but safe, data reliability is ensured, and the choices are abundant.

There is no doubt that the quick adoption of APIs into the Indian financial services ecosystem has proven to be a huge disruption with those slow at adopting it being left far behind. In today’s ecosystem, banks not only have to integrate their own services with API but also have to think about third-party service providers. Therefore, APIs have now become synonymous with digital financial services.

Emerging systems like surviving banks, data enablers, tech giants, and fintech firms are redefining the financial ecosystem not just in India but all over the world. They are likely to take the centre stage as financial service providers in the coming times. From being an emerging channel, digitised banking services have transformed into becoming an essential channel.

Lessons learned

The pandemic shed light on the importance of Web-based and mobile-based delivery services, which were almost critical during the pandemic. It also put the spotlight on digital banking, which came in as a lifesaver during the lockdown. 

For most customers today, digital has become the primary mode of transaction, followed by cards, with cash coming last, and many traditional financial service providers are still grappling with this rapid change. In such a scenario, the adoption of APIs in financial services becomes almost imperative.

Banking, led by APIs, has thus brought about a profound change in how financial operations are implemented today, by enabling easy access to banking services, products, and data. Critical banking services like account opening, funds transfers, lending, card issuance, etc. can be made easier this way and can be implemented, using third-party service providers.

Building a data-driven financial ecosystem is helping script India’s growth story, and APIs play a crucial role in this. India’s future economy is going to be an API economy. 

Technological and digital innovation takes all the credit when it comes to significant strategic implementations in financial services. As India has the largest youth population in the world, its financial customer base is also getting more demanding. It is vital today for financial service providers to personalise and curate the customer experience for seamless service delivery. APIs show the way forward.

(The author is a first-generation entrepreneur and has carved a niche for himself in custody technologies, leading the field with his various ventures. Former Founder & CEO at Miles Software, Ganatra is now closely involved in his multiple ventures in the fintech space that include 1Silverbullet and Finalyca.)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal.