The rise of fintech was more like an explosion – thousands of new apps suddenly sprung onto the market and fundamentally changed how we interact with our finances and the financial institutions.
Technological innovation is driving this revolution, in particular the way information systems interact with each others through standardized exchange contracts : the Application Programming Interfaces (APIs).
An API is software functions written to operate as a communication bridge between databases, programs and Web applications. They are a set of functions or procedures used by computer programs to access services from other operating systems, software libraries or other external systems. For example, the API on Google Maps gives third party developers the building blocks that make it simple to embed Google Maps on their own webpages (see Uber or CityMapper for example).
It is reported that the ProgrammableWeb, a public directory of web APIs, has grown the size of its records from just one in 2005 to more than 19,000 in 2018. Several jurisdictions have or are developing frameworks for the application of APIs. APIs can also support greater unbundling of services. Yet the use of APIs, if not well deployed and securely managed, could in principle lead to new risks. In particular, poorly deployed API’s could lead to increased market structure fragility. You can read more on API security on this really good series of articles made by ProgrammableWeb.
Innovation in risk management: Financial risk APIs
Today, most banks and other financial institutions use the internet only as a way of interacting with customers. For example, online banking and customer portals allow clients to access services without visiting a physical location. Other industries are moving beyond the use of the internet as a communications channel and deploying business applications on the cloud, most of the core banking applications still run inside company-owned and managed data centers. However, the cloud offers many compelling advantages over traditional technology platforms. These include:
- The capability to scale compute resources up and down to meet demand
- It provides an agile platform for developing and deploying new applications.
Moving to the cloud has its benefits
By utilizing modern technologies such as Docker and Kubernetes, the financial risk APIs can scale up and down based on the size of the job. This allows for new innovative operating models such as an SLA that says: “run my risk simulation in 2 hours, regardless of the size.”
Agility is the key
Being agile is extremely important to keep pace with the continually evolving set of regulatory and business challenges facing financial firms. Fast development turnaround times and time-to-market are critical. The financial risk APIs are all RESTful which means they can easily be incorporated into a web application. The core services are engineered so that they can be used either independently or chained together, allowing the developer to assemble them in the manner required for his or her application. It is also possible to integrate them with in-house services, or services from other providers. As a result, developers can quickly construct new applications that utilize and combine the services in new ways.
IBM RegTech Innovations blog:
FSB paper: FinTech and market structure in financial services
ProgrammableWeb: What is an APi