What APIs are and their benefits in implementing financial products

For a long time, when developing your own financial services, software, and digital solutions, one faced the slowness of programming almost everything from scratch – not to mention the numerous obstacles in terms of practicality and security. Fortunately, these processes have completely changed with the advent of so-called APIs (standing for Application Programming Interface).

Today, with this kind of programming at hand, you can create programs, applications, and services in a short amount of time that would have previously taken you months or years, all through integration with these APIs.

Speaking of financial solutions such as cards, accounts, and investments, in this post you will see what APIs are and how they can help your company accelerate and improve the implementation of your products and services.

What APIs Are, Practically Speaking

Technologically speaking, APIs serve as a kind of programmed “translators” to connect different systems, digital services, and programs (such as computer software and mobile apps) so they can integrate in a practical and automated way.

The integrations allowed by APIs go through many codes, protocols, definitions, and more complex procedures that we will not detail here. But let’s make an analogy with translation to make it easier: APIs are like an interpreter translating a conversation between a person speaking Portuguese and another speaking Mandarin. Except with APIs, what comes out of the mouth of the person speaking Portuguese is automatically heard by the other in Mandarin, and vice versa. In this case, these “people” would be the different programs or systems that are connected thanks to the APIs!

An API can function in many possible ways, depending on the utility it is meant to provide. In practice, they are widely used so companies can save time by integrating their services through the exchange of data with other programs and services, without having to resort to a team of developers to work on resolving incompatibilities between one system and another, for example.

We can say there are two categories of API:

• The internal APIs, built by an in-house team to address the specific needs of their applications;
• And public or external APIs, which are designed to enable any developer to build applications that easily connect with third-party services. Today, the most varied services use, for example, APIs that connect and "talk" with the services provided by giants like Amazon Web Services, Google, Slack, and Hootsuite.

Whatever the type of API, its practicality is enormous: they allow you to simplify programming and connect with an existing service (be it a messaging program to serve your clients, a weather service, or a market and investment monitor). And if technologically everything is very complex, the concept is actually simple: think of it as instead of having to complete a puzzle from scratch to create an automated solution, if you have an API at your disposal, everything will come already assembled.

The varied functions of APIs in software and services

The uses of APIs are as diverse as possible. In the case of companies, they are used to optimize and facilitate an internal process or product as we presented earlier. For the average user, it translates into a more efficient experience and new services at their disposal.

Today, APIs are widely used to automate processes such as lead generation. Using APIs, for example, a store can much more easily manage programs that send automatic and personalized messages to attract new consumers and users, whether through email, on social networks, or on the website itself...

We can also think of many other possibilities, such as automatically issuing tax invoices or receipts, configuring the use of a messaging application to update customers on the status of an order at any time… and many other things that would result in a huge list!

As for the user, it is thanks to APIs that you have countless utilities at your fingertips without even realizing it. For example, some of them:

• Direct access to an establishment's address with Google Maps integrated into the website;
• When your cell phone's system connects to the weather service to automatically keep you informed about the weather based on your location, even if it changes;
• When using your messaging program at the office, it's APIs that provide you with customizations and bot integrations, connect with the program and, for example, notify you of the time of a meeting right there;
• When you receive an automatic message with a payment reminder for an account that is about to expire and you have not yet settled.

Thaysa Moraes, Product Lead of Core and Networks solutions at Pomelo, explains that practically any company nowadays works with APIs, even without knowing it (after all, just by connecting to any map service or weather service, you're already using APIs).

"APIs solve the pain of scaling services sustainably, without operational suffering," summarizes Thaysa, who also notes that a process that used to take years in the hands of developers has been shortened to the point where it can be resolved in less than a month.

What is the importance of APIs in the financial sector?

Just as APIs have driven a technological leap in various areas, it is no different in the financial sector: thanks to APIs, it is now possible to have secure and fast technology to offer solutions for banks, credit services, financial management applications, and investment brokers, for example.

Do you want a practical example of the potential of APIs? You only need to look at Pix, an instant payment method in Brazil that has revolutionized the market since its launch in 2020. With technology from the Central Bank of Brazil, it integrates with banks through APIs.

What can you do with them?

Among the many possibilities, the financial sector sees numerous opportunities for service improvement with APIs. For example:

• APIs have increased the speed at which virtually any task that can be automated can be implemented. It used to be a hassle to solve a small problem with the bank, but today almost everything is done on the mobile phone. From card requests to investment authorizations and currency exchange operations, APIs are behind everything to automate the path, creating a better customer experience, allowing them to resolve requests faster, and creating more efficient user processes and transactions.
• The more technological innovation in the sector facilitated by the integration of different services accessible through an API, the more competitive spaces emerge. If a consumer wants a solution that only bank X offers, it is much easier today for bank Y to plan and launch its own version, or innovate against the competition. And the Central Bank itself took advantage of this movement by creating Pix, for example;
• User security on computers and mobile devices is considerably increased, as APIs standardize security layers so that each user can connect to their bank, digital account, or brokerage services, for example. As consumption and access habits become more predictable with automation, they provide a significant advantage against fraud threats and other crimes;
• By using APIs, companies can cross-reference financial data authorized by their clients to offer them personalized (and even automatic!) investment, card, and loan products and services, for example;
• With open banking and open finance solutions, APIs allow optimizing data exchange to improve service offerings to the benefit of the user.

Additional security without the need for physical agencies? Thank APIs for that.

Today, there are countless solutions that may even seem obvious, but have only become commonplace thanks to APIs. For example, know your customer (KYC) processes validate user identities, preventing fraud and other crimes that severely harm the financial system.

If previously issues were only solved at the bank, requiring an ID document to address any small problem, nowadays, it is enough to perform a user validation with another reliable layer of security, without the inconvenience of asking customers to leave home to resolve it. The revolution this has brought in terms of time (and money!) savings is enormous, explained Luane Lima, who is Product Lead at Pomelo in the Identity solution, responsible for the KYC area.

When speaking in such a way, it is even difficult to measure the importance of APIs in that context, isn't it? So we are going to give you information that will surely catch your attention:

• Major global and Latin American players directly associate APIs with the role of having developed the conducive ecosystem for fintech, a model that has been revolutionizing markets;
• The famous virtual wallets operate based on APIs – and they are a tremendous success. In Argentina, they almost quintupled during the pandemic: they increased from 3.5 million users in March 2020 to 16.3 million by the end of 2021.
• In Brazil, according to the Febraban Banking Technology Survey 2022, seven out of ten banking transactions carried out in the country in 2021 were done via the internet and mobile phones, while only 3% of banking transactions were conducted at physical branches.

Without APIs, these numbers would undoubtedly be very different.

APIs in the future: connecting more and more financial services and products

Do you have a company that offers financial services or do you want to offer your own services? This is already a thing of the present. With APIs, it is increasingly easy, as we have seen, to have your own cards, offer digital accounts, and customize financing and investment services, among other possibilities.

However, in the future, this reality may become even more impressive. Thaysa Moraes, who has already explained APIs to us, estimates that as more and more solutions of this type are used in the market, companies will have more opportunities to optimize their services – to the point of resolving complex user requests through automatic responses given in milliseconds.

Meanwhile, according to Luane Lima, movements like open banking, with extensive interbank communication, already show how it will become increasingly easier to ensure interconnected solutions that enhance the service offering for users, "in a more transparent and secure way."