Top 4 API Use Cases & Examples in the Finance Sector in 2024

ByPaul Christiano Last Update on

Hi there! As financial services move toward digital transformation, application programming interfaces (APIs) are emerging as a critical tool to build connected, insight-driven organizations.

In this comprehensive guide, we’ll explore some of the top API use cases and examples across banking, private equity, insurance and trading.

Whether you’re a technical architect, product leader or senior executive, this overview can help us understand how leading financial institutions are leveraging APIs for automation, insights and strategic advantage.

Let’s get started!

APIs 101: Why Financial Firms Need Them

First, what exactly are APIs and why should financial enterprises care about them?

APIs are sets of programming code that enable software applications to communicate with each other. They act as a messenger between systems, allowing the secure exchange of data and services.

Here are some key reasons why banks, insurers and other financial players are adopting APIs:

Greater Connectivity

APIs allow integrating third-party apps and partners into an organization’s core systems quickly and securely. This breaks down data silos.

Improved Digital Experiences

APIs enable new digitally-powered capabilities and unified customer experiences across channels.

Increased Efficiency

APIs can automate manual processes like loan origination and claims management to boost productivity.

New Revenue Opportunities

API-based services like open banking, embedded lending and parametric insurance open new monetization channels.

Enhanced Data Leverage

APIs allow better capture, organization and analysis of data to inform strategies.

According to McKinsey, the number of bank-owned APIs will double by 2027 as financial institutions make APIs central to their tech stack.

Top API Use Cases by Financial Sector

Now that we‘ve got the basics covered, let‘s analyze some leading API applications across banking, private equity, insurance and trading:

1. Banking APIs

For banks, APIs can integrate core systems like payments, lending and data transfers with external fintech apps and partner capabilities.

Key banking API use cases include:

  • Open Banking – Allowing access to customer data through open APIs for third-party services like money management apps aggregating accounts.
  • Payments – Enabling instant payment transfers between accounts internally and externally.
  • Lending – Providing access to origination and servicing capabilities for embedded lending fintechs.
  • Transactions – Supporting services like wire transfers, ACH payments via APIs.

According to Gartner, open banking API traffic is forecasted to reach 213 billion calls in 2022, a 53% increase from 2021.

Let‘s look at a real-world example:

BBVA Banking APIs

BBVA, a leading Spanish bank, offers a range of open APIs including:

  • Mortgage API – Enables partners to integrate mortgage financing into their apps and sites.
  • Auto Loan API – Allows auto financing from within dealer and OEM platforms.
  • Business Collections API – Simplifies collections through real-time payment tracking.

BBVA has processed over 150 million API calls, showcasing the scale of banking API adoption.

2. Private Equity & Venture Capital APIs

For private equity and venture capital firms, APIs enable managing investments and portfolio data more efficiently.

Key use cases include:

  • Fetching real-time data on portfolio holdings and exits.
  • Monitoring investment activities across the PE/VC ecosystem.
  • Enabling LPs to manage fund commitments digitally.
  • Automating reporting such as quarterly statements.

According to BCG, over 50% of PE firms lag in technology and data capabilities. Strategic API adoption can help close this gap.

Moonfare Private Equity API

An example is Moonfare, a digital PE investment platform. They launched an API that lets other platforms integrate the ability to invest in private equity funds.

This embeds PE access across partner touchpoints, rather than needing to navigate to a separate portal.

3. Insurance APIs

Insurers can leverage APIs to enable key capabilities:

  • Claims Processing – APIs allow faster claims by connecting systems between insurers, providers and partners.
  • New Product Innovation – APIs enable accelerated development of usage-based and on-demand insurance.
  • Partner Integration – Open insurance APIs simplify data sharing across distribution partners.
  • IoT Integration – Fetching real-time IoT sensor data through APIs allows proactive risk monitoring.

According to a McKinsey report, API initiatives can improve loss ratios by up to 10 points for P&C insurers.

Lemonade Insurance API

An example of insurance APIs in action is Lemonade‘s API which allows partners to integrate its renters or homeowners insurance into any application with just a few lines of code.

Partners ranging from e-commerce platforms to IoT companies can now offer Lemonade insurance seamlessly to their users.

4. Trading APIs

For investment firms, APIs are critical to enable automated algorithmic trading based on custom algorithms and market data analysis.

Key capabilities powered by trading APIs include:

  • Automated Order Execution – Placing trades programmatically based on strategy signals.
  • High-Frequency Trading – Ultra-low latency APIs for light-speed transactions.
  • Backtesting – Testing automated strategies against historical data to validate effectiveness.

According to Greenwich Associates, over 90% of institutional trades in North America are now executed via automated algorithms.

Interactive Brokers API

A leading trading API is Interactive Brokers‘ TWS API which lets developers integrate algorithmic trading by connecting to its order management infrastructure.

It allows functions like submitting orders, streaming real-time market data, tracking account balances programmatically.

Key Challenges in Adopting Financial APIs

While APIs provide immense value, adopting them also involves overcoming few critical challenges:

Security Concerns

Financial services deals with highly sensitive customer data and transactions requiring robust security, but APIs can expose vulnerabilities if not properly implemented.

Per a Salt Security study, 94% of firms have experienced API security incidents.

Best practices like OAuth 2.0 authorization, OpenAPI specs, SSL, encryption are musts when developing APIs. Continuous scanning for vulnerabilities is also advised after launch.

Lack of Standards

Unlike messaging formats like ISO 20022, there is currently no industry-level standardization for developing financial APIs. This can hamper ecosystem integration.

Groups like FS BIAN are working on API definitions for banking scenarios. But for now, using tools like API gateways and management platforms can help smooth integration issues.

The Future of Financial APIs is Bright

As we‘ve explored, APIs are already driving sweeping innovation across banking, private equity, insurance and trading.

But this is only the beginning of the API revolution in financial services. Incumbents and disruptors alike have an opportunity to leverage APIs for customer-centricity, efficient operations and distinctive capabilities.

Exciting possibilities lie ahead with the rise of technologies like open banking, blockchain-based smart contracts, embedded finance and open data built on the foundations of APIs.

Financial enterprises that embrace API-led connectivity, insights and automation will gain a definitive edge. Hopefully, the examples and analysis provided gives a glimpse into the transformative potential of APIs for the future of finance.

I am Paul Christiano, a fervent explorer at the intersection of artificial intelligence, machine learning, and their broader implications for society. Renowned as a leading figure in AI safety research, my passion lies in ensuring that the exponential powers of AI are harnessed for the greater good. Throughout my career, I've grappled with the challenges of aligning machine learning systems with human ethics and values. My work is driven by a belief that as AI becomes an even more integral part of our world, it's imperative to build systems that are transparent, trustworthy, and beneficial. I'm honored to be a part of the global effort to guide AI towards a future that prioritizes safety and the betterment of humanity.

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