APIs Pave the Way for the Rise of FinTech Alt Banks
In the continued evolution of financial services, the neobanks have had a heady rise, offering products and services that aim to be squarely competitive with, and more attractive than, what’s on offer from traditional financial institutions (FIs).
It is the application programming interface (API) that allows these digital upstarts to take aim against legacy systems and legacy providers.
Against a broader backdrop, the APIs help FinTechs design and embed digital-first features that span a wealth of banking and payments functionalities directly into platforms and apps.
The result has been an unbundling of financial services, where companies can focus on specific niches and demographics, with go-to-market strategies that emphasize speed and agility. There is also a lower cost structure, since neobanks and digital-first firms need not build a dedicated infrastructure (or hire additional compliance or development staff) to deploy and run those offerings.
As PYMNTS has noted, payments are fast becoming a must-have feature for companies, especially as they seek to broaden their apps’ appeal.
Embedded Finance Gains Ground
Within banking, we’re seeing the evolution of what might be termed “embedded finance” — where, theoretically, any company can come to market with a menu of a-la-carte banking options. The ultimate goal would be to create an ecosystem that keeps users “in house,” so to speak, as they conduct their daily financial lives, satisfying specific needs in an online-only fashion.
In one example, green banking startup Aspiration helps its customer base use products and services to pay bills or make purchases — planting trees for every transaction instead of offering more traditional rewards such as cash back, discounts or travel perks — and aims to introduce credit cards with features aimed at fighting climate change.
See also: SPAC-Bound Green Banking Startup Aspiration Bets on Conscientious Consumer Demand
In recent days, we’ve gotten some more visibility into the challenger strategy, and in the growth that can be a positive ripple effect.
Personal finance company SoFi's branching out beyond student loans has powered 35% top-line growth. Lending segment net revenues were up 21% on an adjusted basis to $210 million, while financial services revenues nearly quadrupled to $3.2 million. The company said that consumers continue to tap into its app and SoFi Money offerings.
Read more: SoFi Touts More Finance, Lending Options in Q3
And in an interview published on Thursday (Nov 11), David Dindi, CEO of FinTech Atomic – which is focused on enabling embedded retail investing — said he believes unbundled services will become the new model. Atomic allows enterprise clients to embed a broad range of investment products and services, including direct indexing, ethical investing and currency trading in 60 markets.
More details: Atomic Launches APIs to Enable FinTech Investment Products
APIs allow non-banks and FinTechs that want to deliver banking experiences to change the ways in which – and even to whom – financial services are delivered.