Application programming interfaces (APIs) modernize legacy software to make it more efficient and useful. While APIs have been in use for some time, they’re still evolving, particularly in the financial space. Let’s review the current financial tool API economy.
What is an API?
Before we dive into the state of the economy, we should establish the working definition for an API. Without getting technical, an API is software that receives an input (a user query), processes it, and renders an output (the requested information or desired response). It runs behind the scenes and is typically designed for a particular purpose.
The API may be developed for internal use within a company, as a tool that gets sold, or as a public resource. APIs developed for internal use are first-party APIs, and APIs developed for other companies to use are third-party APIs. Stripe (payment processing), Zapier (automation), and Cloudflare (security) are three examples of popular third-party APIs.
What Makes an API Good?
Noteworthy and useful APIs are characterized by the following:
- They simplify a process.
- They fulfill a true business need.
- They save time or money -- or make money.
- They respond to market and societal trends.
The best APIs end up being widely adopted because early users become evangelists for the tools.
Which Industries Are Emerging?
At this point, you can find APIs in every industry. However, there are several sectors that are really ramping up API development, including:
- identity, background, and employment verification
- data management
- banking-as-a-service (BaaS)
For this article, we’re going to delve a little deeper into identity, background, and employment verification APIs as well as banking-as-a-service (BaaS) APIs because they’re both a big part of the financial tool economy.
Identity, Background, and Employment Verification APIs
Without the assistance of technology, verifying someone’s identity or running a background check is no easy feat. It involves completing lots of paperwork, making numerous phone calls to companies or other third parties, and conducting tedious research across multiple databases. While critical to do, the process eats up too much time.
Identity, background, and employment verification APIs simplify the process and retrieve the required data quickly. The modern tools help businesses and other interested parties verify what they need to know to move a pending transaction forward. A few notable identity, background, and employment verification APIs include Trusona (authenticates identity), Truework (verifies employment), and Checkr (checks background).
Banking-as-a-Service (BaaS) APIs
A lot of legacy banking software is slow and overly complicated. Using it requires manual data entry and involves searching for various records and consulting multiple information sources. In short, old software makes getting anything banking-related done a time-consuming, disjointed process.
BaaS APIs reform the software so that it’s more streamlined and feature-rich. The improved tools help banks provide better and faster service to customers. Two well-known BaaS APIs include Plaid (links bank accounts to apps) and Moov (facilitates automated clearing house (ACH) transactions).
Where Modern Tax Fits In
Modern Tax is brand new to the identity verification and BaaS API scene. One of its primary functions is helping banks process loan applications by supplying income information from the Internal Revenue Service (IRS). With the consumer’s consent, the cutting-edge tool connects directly to the IRS database, gleans more than 250 pieces of data from verified tax records, and provides the lender with what they need to know in three minutes.
Modern Tax also effectively verifies a consumer’s identity. To use the tool, the consumer must enter their social security number and answer security questions to access their IRS tax account. The best part? They never need to leave the financial institution’s app or website to do it.
Developers for banks can easily create a customer-facing portal that features the institution’s branding. The API is fully encrypted and safe to use. Multiple plans are available to suit different needs and budgets.
Modern Tax meets all four criteria for a noteworthy API. The tool:
- makes getting income information and verifying identity simple (no more waiting on paper forms)
- fulfills a true business need (banks require this information to make informed lending decisions)
- saves time (data is available in minutes)
- responds to market or societal trends (we live in a fast-paced world, and the tool works almost instantly)
Progress means that each new wave of technology improves upon the one that came before it. Sophisticated and modern APIs are completely revolutionizing how people bank and complete other transactions. Efficiency, simplicity, speed, and customer service are the current driving forces behind API development - and we don’t expect those to change anytime soon. We’re excited to see what the financial tool API economy looks like a year or two from now!