Billions of answered daily API calls & the Fintech API economy

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It was 2015 when I joined Bernard Lunn on Daily Fintech and profiling Xignite was amongst my first blogs. I had just met Stephane Dubois CEO and Founder in Zurich as part of his European tour at the Zurich Fintech gathering on “APIs-essential infrastructure tool”.

Xignite — a wind intensifying the Fintech fireworks

Xignite was helping the robo-investing Fintech vertical grow. Fast forward to today and there is no doubt that Xignite has grown. In the first half of 2020, they reported

In April 2020 alone, Xignite saw over 365 billion API hits, or more than 12 billion a day, setting a record for the firm. Source

As SoFi is going public through the IPOE SPAC, there is ample information shared publicly around the ways Xignite has powered up SoFi innovations. Specifically, Xignite boasts their Sofi Investment collaboration through which Sofi offers a service called `Collections` which are lists of stocks with specific characteristics (e.g. dividend growth or top picks). Xignite allows for real-time, dynamic adjusting of these collections and of course, customization via additional criteria.

The API infrastructure for Finance and more importantly for Embedded Finance, has grown substantially and too fast, to the point that I personally have major cybersecurity concerns which I voiced in a short video clip (part of an Advent-like daily series on security concerns and wishes).

Several cloud providers admit that the acceleration of the cloud-based API economy needs better monitoring and security. The authentication challenges and risks of abuse are well known.

While Xignite is mainly focused on financial market data APIs, there are other API infrastructure players specializing in other parts of the complex financial world. Plaid was mainly focused on transactional consumer banking data, and now is also a big player in Payroll data APIs. Now Argyle, is another US Fintech focused on employment data APIs.

We also have specialized Credit APIs companies like Nova Credit which essentially wants to be the credit rating agency for all (even those that don’t have a credit history in the US). Nova Credit has recently teamed up with Canadian API company Salt Edge, to create cross border credit passports.

This trend of API specialization to me feels similar to what is going on the Alternative data space. There too, alternative data providers have been generalists and growing their data sets, but now the market is maturing and there is a business need for specialization of alternative data providers.

Let's also not forget that the boom in the Financial API space was led by Yodlee which was undervalued for a while until it got bought out by Envestnet (ENV) back in 2015.

What interests me these days is what is going on in the established asset management space which is of course, furious with all the data scraping that has been going on and is at the same time accused by Fintechs for unanswered API calls.

Fidelity`s response to all this, was to spinoff a separate company focused on APIs, Akoya API. Eleven incumbent banks plus Fidelity own Akoya which was spun off in early 2020 just as the Plaid-Visa deal was announced.

Source Akoya

Morgan Stanley has had a long-term relationship with Yodlee.

JP Morgan on the other hand, has had multiple relationships with Yodlee, Plaid, Finicity, and Intuit. We can easily foresee that none of these business relationships are set in stone or loyal. As the API in the finance space is very active, these relationships will change.

Finicity has been acquired by Mastercard and the Plaid Visa deal had some Plaid clients consider shifting to other providers. Wealthmanagement.com reported that Financial advisors have feared a reduced focus on Plaid`s wealth management aggregation offering and were looking into MX or Morningstar`s ByAllAccounts offering.

Schwab runs its own APIs. The American Banker reported recently that the large incumbent banks (Bank of America, JP Morgan, Wells Fargo) have participated in a pilot that aims to reduce scraping practices and evaluate data aggregators like Plaid and Finicity. Risk-assessment providers Trusight and KY3P of IHS Markit are managing these processes and the related data. The Streamlined Data Sharing Risk Assessment involves The Clearing House and the risk-assessment providers TruSight and KY3P and is live since Jan 26, 2021.

Keeping on our monitor the API economy developments, my interest is on the following:

  • Will incumbents leapfrog the independent financial API providers?
  • Will increased specialization and growth in Open Banking initiatives, solidify the current dominance of the independent financial API providers?
  • Will certain subsectors, like Wealth management and Credit which are more complex than payroll and consumer banking transactions, be the only ones that remain standalone?
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