Cloud-Based Fintech Services Enabled by APIs

Category: API , Connectivity as a Service
Author: NXTsoft

In today’s financial services world, cloud-based computing for daily banking operations has become a technological show-stopper or more precisely a show enabler. Cloud-based tech provides software, business, infrastructure, banking, platform, and even fintech functionality, all empowered by application programming interfaces (APIs). 

Cloud-based banking enables financial institutions to control core banking operations and financial services without dedicated physical servers. Some of the typical cloud service models in banking include:

  • Banking as a service (BaaS), allowing non-banks to offer core financial services to their customers by integrating with financial institutions via APIs.
  • Business process-as-a-service (BPaaS), which covers everyday operations like billing and human resources.
  • Fintech-as-a-service (FaaS), automates and improves the banking customer experience as well as to make financial operations management easier.
  • Infrastructure-as-a-service (IaaS), a complete core banking frame that handles business operations and software integrations.
  • Platform-as-a-service (PaaS), core banking platforms for app and database development.
  • Software-as-a-service (SaaS), banking software for accounting, invoicing, customer relationship management, etc.

Allied Market Research held the global banking-as-a-service market already generated $2.41 billion in 2020, and projects it to reach $11.34 billion by 2030. 

Another cloud-based tech service that appears ready to really take off is fintech-as-a-service (FaaS). Grand View Research places the global FaaS market size at $232.14 billion in 2021 and a study by market research firm, Fact.MR expects a 17% compound annual growth rate (CAGR) from 2022 to 2032.

Connectivity as a Service (CaaS) - API for FIs

Drivers Underpinning Fintech-as-a-Service 

Fintech-as-a-service, which automates and improves the banking customer experience as well as to make financial operations management easier, has already made it possible to invest, borrow, transfer, and save funds virtually. 

FaaS tech solutions include platforms for fraud prevention, open banking, card issuing, digital payment processing, data analytics, and robotic process automation, all driven through the cloud. Financial institutions, in particular, seek ways to easily deploy these technological advancements in their products and services. 

On the other hand, many fintech companies want to partner with financial institutions to simply distribute their technology. The new breed of third-party APIs frees developers from locking to any particular platform and allow them to bring their applications more efficiently to market. They can also benefit from partnerships that already have access to ready-made solutions. 

With the fintech industry gaining momentum and growing its market share by considerably, regulations have become more favorable toward these business relations. Therefore, integrations for banks and fintechs is going to see some improvements.

More Agile Than In-House Platforms

According to International Banker, “Today, the technologies that fintech (financial technology) companies are rolling out are invariably in hot demand. Lending institutions seeking additional agility to deliver cutting-edge solutions are increasingly looking to new, nimble tech start-ups to advance their own business functionality, with innovative products and services such as digital-payment solutions, mobile banking, wealth management and insurance products among the most highly sought after.”

The pressure on banks and credit unions to offer more competitive, innovative and user-friendly products and services stems from the increasing amount of nonbank companies offering financial services, such as digital financial accounts, wallets, payments, and lending. Tech knowledgeable legacy financial institutions can ward off the invading threat by integrating FaaS.

Certainly, fintechs deliver traditional financial institutions with a range of offerings, typically as software integrated into their systems through APIs, with the platforms able to seamlessly integrate with the banks’ back-offices. For non-banks, such services offer a way to deliver financial products and services efficiently and cost-effectively.

Financial institutions and other financial services businesses can experience fully developed, cutting-edge processes created by technology specialists, which they can access through APIs in the form of FaaS.

FaaS can provide a full stack of integrated payments, financial and business services capabilities embeddable into any application. In payments this provides the capacity to collect and disburse funds in any currency, issue cards, expand e-wallet functionality, and manage know your customer (KYC) and compliance processes more efficiently. 

As such, FaaS allows companies to simply leverage fintech solutions to enhance their end-to-end processes, improve customer experiences and operate better marketable services than previously possible.

Fintechs, APIs and FaaS 

A number of banks and credit unions have already accepted the notion of consumer enablement by delivering a seamless experience enabled by open finance, BaaS, and FaaS, which allows them to share financial data across financial solutions, products and platforms. A Finastra survey found 78% of respondents believed shared data and infrastructure will become the norm across the industry.

There remains widespread agreement by global financial services institutions that fintech collaboration has made their businesses more efficient, has been a driver for success, and that the benefits of collaboration outweigh its costs; according to 80% of Finastra survey respondents. 

Many traditional financial institutions however still operate outdated pieces of legacy systems — including core systems — that are not compatible with modern fintech. This can be a big issue in implementing the FaaS model as it would hinder third-party integrations. 

Additionally, many financial institution customers, both consumers and businesses, use financial services partitioned off from each other. With the help of APIs, financial institutions can easily and effectively integrate these applications.

They must tap into an extensive variety of these fintech enablers helped extensively by open APIs. Some link users to their banking information, and allow them to experience newer banking products and services within the traditional banking systems.

Adopting BaaS business lines, usually distributed to clients via APIs, requires strong risk and compliance management of the embedded fintech partner. Opening up a financial institution through APIs is no minor achievement. Producing an FaaS method should center on ease of integration and the capability to deliver maximum business value. The operational processes and business capabilities need optimum exposure. 

NXTsoft's API connectivity provides a best-of-breed connectivity solution for financial institutions and fintechs. With the solution, financial technology suppliers can close deals quickly with pre-built API integrations into so many existing applications. Financial institutions and vendors can take advantage of NXTsoft's experience connecting fintech solutions securely to banks and credit unions, using the strongest technology foundation and the most cutting-edge cloud-based technology; and following the uppermost industry and regulatory standards.

Connectivity as a Service (CaaS) - API for FIs

August 15, 2022
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