What is API Integration in Finance and Why Do You Need it

The capital markets value chain is complex, consisting of multiple pre-trade, trade, and post-trade processes. As trading has become increasingly electronic, a diverse web of applications and systems must work seamlessly to support this end-to-end workflow. Automating interoperability is key, and Application Programming Interface (API) Integration will drive greater efficiencies and better client experience.

API Integration Definition

An API integration connects two or more applications through their APIs, allowing seamless data exchange between systems. This integration enhances the functionality and interoperability of financial software, ensuring real-time data synchronisation, improving operational efficiency and enabling innovative new services.

Implementing API integration allows financial institutions to do more with data that was once hard to access and did not deliver value. Whether building internal digital solutions or integrating with external fintech partners, API integrations automate processes, seamlessly facilitate transactions and data exchange, enhance customer experience and ultimately drive growth and efficiency across the industry.

Benefits of API Integration for Financial Institutions

As mentioned above, financial firms can benefit from this approach and create a competitive advantage in three key areas:

• Fine-Grained Control

This strategy provides more precise control over data exchange and interaction between applications. Developers can specify exactly what data fields are required, how they should be formatted, and the operations that can be performed across multiple systems.

This allows for highly customised interactions between applications, tailored to specific needs and use cases, enabling IT teams to create more robust and feature-rich integrations. This, in turn, allows the business to design customer-defined workflows that focus on user experience and competitive differentiation, instead of being limited by poorly integrated systems.

• Interoperable Technology Stack

Cost and complexity have delayed the adoption of genuine interoperability in the financial services industry. However, we expect this behaviour elsewhere in our lives – mobile devices, smart TVs, smartwatches, etc. So why shouldn’t all applications in a bank or asset manager interoperate, seamlessly sharing data, context and intents? This is a question that the IT teams in the financial sector have been trying to solve with pricey outsourced integrators or big-bang digital transformation projects (the majority of which fail).

Adopting API integration as the heart of IT strategy will allow financial firms to ensure all new application and workflow solutions will be interoperable going forward, buying time to upgrade legacy systems. Working with third-party vendors who have an open philosophy will also help firms progress to an adaptable application ecosystem that empowers innovation. Tackling API integration in this way helps achieve interoperability more seamlessly, without the need for’ big bang’ projects. An interoperable tech stack is the result of a well-planned, sustainable IT strategy, but requires some hard choices about vendor adoption.

API integration will allow applications to communicate directly and in real time, dramatically reducing manual operations, the risk of human errors, context switching, and rekeying of information in multiple systems.

• Real-Time Updates

API integration supports real-time synchronization of data between systems. Whenever a change occurs in one application, the API can synchronously notify the other application, ensuring that data remains consistent across all platforms.

This immediacy is crucial for applications that require instant data accuracy, such as financial services, inventory management, or real-time analytics, enhancing the overall responsiveness and reliability of integrated systems.

A recent example of improving efficiency at the trading desk through real-time alerts is the joint solution of Rapid Addition and ipushpull. Through the seamless, real-time distribution of trading platform data notifications across popular chat platforms like Symphony, Microsoft Teams, and WhatsApp, users are immediately informed of risk limit breaches, FIX session disconnects, rejected trades, and other critical operational issues via their communications channel of choice.

Use Cases in Financial Services

Time and instant access to information are key to success for sales and trading desks, so there are multiple use cases in financial services that exploit the value of the API integration approach.

•  Client Management

Using API integration across critical systems such as CRM, trading history, risk profile, market data and so on, firms can create a unified view greatly benefitting the sales and trading desks. Consolidating data from multiple sources provides a quick overview of a client account without the need to check multiple systems separately.

Another example is enabling portfolio managers to view all their financial information in one place, enhancing the speed and quality of decision making. Automating data synchronisation, ensuring real-time updates and reducing manual errors are obvious benefits, while also improving productivity through enhanced.

•  Trading Platforms

Being the only integration method allowing applications to communicate directly and in real time, API integration enables immediate data synchronisation and actions. This is critical for an electronic trading workflow that requires client orders to move through steps (e.g., application of routing logic, risk checks, and trading algorithms), real-time ingestions of market data, and instant execution. Such highly integrated, low-latency and often high-throughput ecosystems are crucial for the competitive world of electronic trading, but also require interoperability with post-trade functions both within a firm as well as external counterparties and market infrastructure providers.

•  Payment Processing

On the payments side of banking, APIs connect with payment gateways (like Stripe or PayPal) to facilitate quick and secure transactions. This integration ensures smooth checkout experiences for users and real-time payment confirmations, which greatly improves the user experience, performance and scalability.

Many payment gateway APIs support multiple currencies and payment methods, allowing businesses to cater to an international customer base without needing separate integrations for each region or currency.

How to Get Started with API Integration

Most organisations already have API integration in place to some extent. Whether they have already started and want to scale their efforts or are just beginning to develop a strategy, there are several key steps to ensure success.

1. Identify the specific goals of the API integration strategy up front, such as improving customer experience, increasing operational efficiency, or enabling new services.

2. Ensure IT infrastructure is fit for purpose and supports compatibility by updating systems where necessary and establishing a robust network environment.

3. Use sandbox environments extensively to test integration before deploying in production environments.

4. Implement monitoring tools to track API performance and security. Regularly update and maintain the APIs to address any bugs, incorporate new features, and counter cyber threats.

Even with the best technology, fintech partners and internal IT teams, the key to success lies in the alignment between business and technical decision-makers and their dedication to improving user experience and value delivery. Once financial firms achieve this commitment, following the above-outlined recommendations will help them improve productivity and become more competitive.