There are 1700 APIs (rounded) shared on the Financial Category of the Programmable Web directory, plus 1200 in payments. Government has 1150, e-commerce 2500, and mobile 2450. Xignite launched last September the #FintechRevolution API ecosystem, which is a consortium of 21 companies supporting and connecting developers with best-of-breed financial APIs. The focus is on non-traditional workflow, data and analytics providers (e.g. Tradier, Estimize, Autochartist).
Financial businesses, startups or those innovating, may or may not have an API strategy. The main choices I see are:
- A white label offering
- A private API
- An open API
A white label offering, is a package without a label that a business can buy from a provider. This package can be integrated with existing processes and can be offered to your clients with your own logo. Customization is only feasible on the window dressing level.
An API (Application Programming Interface) is a software program that enables other software programs to interact. It can enable access to backend data and functions of an organization.
It is easy to grasp the concept in FX trading: an API is the software that enables a trading platform to connect with the market where execution occurs. Investopedia says:
Proprietary APIs are offered by almost every major online forex brokerage.
Which brings us to the distinction between private and Open APIs; the latter not being yet well defined. Private APIs or Proprietary APIs, are those accessible only to customers and in-house developers. As such, the security problems are controlled and whether modifications are truly valuable, is also monitored.
On the other hand, linking to Open APIs, a developer or business, doesn’t need to login into the provider site or be a customer. Open APIs, sit on the programmableWeb. They are similar to the Internet or open-source Linux operating system. Security problems and software development is not controlled centrally.
More detailed considerations between the two architectures and business strategies can be found on the API Academy Private APIs vs. Open APIs. Clearly, the market is versioning their business strategies and testing waters, from private APIs, to open APIs, and some refer to hybrid APIs.
Zooming into Digital Wealth management, which we defined as broad and intrusive in our early April post “How we define and categorize Fintech” wont help us take a look at the API movement, its versions and its business strategy alternatives. We choose to start by the, by now, boring robo-advisory space. There are two broad types of such businesses:
- Standalone robo-advisor startups
- Broader businesses with a robo-advisory offering
We stressed their dynamics in a 90sec videographic in early March, as we were seeing serious signs of leapfrogging of the “incumbents”. From the entire universe of robo-advisors, we distinguish two meaningful clusters involved in robo-advisory:
- Robo-advisory business with brokerage and or custody services
- Robo-advisory business without brokerage and or custody services
Most of those in the first category, have been adopting the API movement around their robo-advisory business along with a white label offering. A few examples are:
White label & API offering
Only API offering
Robinhood (free commission brokerage)
Tradier (brokerage as a service)
From the second batch, those without brokerage and custody, we see more of a white label rather than an API approach. Betterment for example has taken the white label approach for their institutional offering. And so has Sig Fig and NextCapital in the US (just to name of few in the US). In Italy, AdviseOnly has a white label offering; Money on Toast in the UK. Who am I missing in Europe?
This leads to the distinction of the “Coming Soon” API of Hedgeable which will be included on the programmable web. Announced about 2 weeks ago on “Daily API RoundUp: NASA, MapFruition, Hedgeable, ProPublica Campaign Finance”. Hedgeable, the first robo-advisor (albeit not robo 1.0) that offered retail clients the opportunity to invest in bitcoin. Now they are taking a lead in joining the OPEN API movement.
Wealthfront, who is focusing on direct consumers (not advsiors) seems to have chosen an API approach (no white label offering) that is closer to the Robinhood style:
“Wealthfront 3.0 will feature direct integrations with platforms like Venmo, Redfin, Lending Club and Coinbase as well as bank accounts and external brokerage accounts.”
Redfin is an on-line real estate firm. Venmo is a digital wallet that allows sharing payments with friends (like splitting cab fare). Coinbase is a bitcoin wallet. Apex Clearing is the clearing partner for Wealthfront. All these are integrations are possible via “private API” access of these parties.
Glancing at the 1700 financial APIs on the programmable web, it is evident that they are mostly data related or crypto-currency related. As there is no easy way to granulate the categorization, we can only conclude that most open financial APIs are related to brokerage (e.g. Tradable), banking of course (e.g. Capital One), payments and PFM.
As the broader trend of Convergence and integration is underway in a couple of verticals of financial services (digital wealth management and lending, for example); we will be watching the attractors in action.
Where will the puck head to in the robo-advisory space?
Which European robo-advisors (with no brokerage and custody business) have a white label offering or some version of an API strategy?
Anybody in Asia? Smartly, 8Now!, are just launching locally and aren’t fired up via a white-label from the West.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Efi Pylarinou is a Digital Wealth Management thought leader.