Application programming interfaces (APIs) have been around for 20 years, but, as Ron Shevlin points out, just one in five community banks in the USA had deployed APIs before 2020, and they aren’t even on the radar of at least 20% of the banks.
Contrast this with Europe, where 97% of UK banks are already using them, and even the lowest uptake country, the Netherlands, has 83% of its banks deploying APIs. The reason for this huge gap between the USA and Europe is the latter’s Open Banking initiative, however Shevlin says that American banks cannot simply use this as an excuse for their low adoption of the technology.
As a result of the lack of API deployment, US banks are missing out on a number of opportunities, including the reduction of time and costs in several business processes, particularly product application-related processes.
The best known API providers include Stripe, Plaid and Yodlee. These three have furthered the connections between financial institutions and fintech companies. However, Shevlin says there are three fintech startups that are “poised to have a significant impact on the banking industry: Pinwheel, Sila, and Codat.”
Pinwheel, which has just announced a $7 million funding raise, offers an API for payroll data, “that handles everything from income and employee verification to easily switching and managing direct deposit.”
How would this revolutionise banking? According to a Techcrunch article, “For consumers, the main draw is automated direct deposit control, which will allow consumers to control where their paychecks go. For instance, if they want to split a direct deposit into multiple accounts, or regularly move part of their paycheck into a savings app like Digit or Acorns, Pinwheel can help them do that easily.”
According to Coindesk, Sila, “is an API platform that issues an ERC-20 stablecoin called SilaToken (SILA). Every transaction on the platform is done using the token, which is pegged 100:1 to the U.S. dollar. Sila plans to install card payments, international payments, business ID verification and begin issuing tokens within one business day. Its partner bank, Evolve Bank & Trust, plans to connect to the Clearing House system, a network started by big banks that provides access to instant payments.”
Techcrunch comments that Sila’s API would: “Supplant ACH as the payments choice for companies who need to move money. Sila’s API for identity verification, which empowers developers to identify users and use that info in the company’s banking API, allows users to debit their accounts and move funds from one account to another. On top of that infrastructure, Sila allows for the creation of smart contracts, which should allow for more rapid deployment of financial apps.”
Codat, which is based in London, has an API focused on small businesses, and is signing up 10,000 new customers per month. According to TechCrunch:
“Codat is building an API that connects with all the systems that hold all the relevant financial data. That type of information is usually spread across multiple systems, and small businesses often use different systems. On the other side, banks, insurance companies and more can speed up their internal processes and give you an educated answer for your next loan or insurance product.”
Codat is especially on point right now as small businesses are struggling and need funds. However, the current lending processes are time-consuming and confusing. Its API simplifies and streamlines the flow of data between small businesses and financial institutions, and could potentially disrupt the way SME loans are handled today.
On the other hand, perhaps APIs aren’t the ultimate answer for a banking revolution. Brian Platz, co-CEO of Fluree, says, “The answer isn’t to build a better API; rather, it is to turn the database inside out and let data escape from the walls that confine it. Blockchain is how data frees itself. It’s time to end the era of data APIs and begin to look into the blockchain.”