Importance of API in the lending ecosystem

Importance of API in the lending ecosystem


The ecosystems across industries and verticals have become highly volatile and fast-paced. The impact is evident in consumer behaviours, as well. There has been a huge shift in the borrowing behavior, especially, post-covid, for instance. It is common to see customers borrowing for daily groceries, utilities as well as apparels, and credit is no longer confined to assets or high-value purchases. In tandem, lending has undergone a change, and financial institutions are all caught up delivering better experiences to every customer in this sphere.

This conundrum has brought APIs (Application Programming Interfaces) at the center of the lending ecosystems. APIs in lending promise to create and deliver better, instant solutions to a hurried customer. They also serve as a facilitator finding personalized solutions, while generating bundles of user-generated data for the businesses to decode and leverage.

        <h2>APIs in Lending Post Covid-19

As a result of COVID-19, lenders have shifted their focus to digital transformation. They are in a spree to transform their legacy and silo systems. Financial services providers, meanwhile, are fast building up seamless and contactless borrowing experiences for their clients.

Due to this rapid pace of digitalization in all aspects of life, lending institutions and financial service providers are faced with the challenge of providing seamless and enriched consumer experiences, however. APIs play a critical role here in the modern post-covid ecosystems by helping businesses become a lot more connected – timelessly.

A lender can now enrich the customer profile with data from multiple sources in order to make accurate decisions by gaining a holistic understanding of the customer’s financial status. In addition, financial institutions can use APIs to develop innovative banking products and services, which will contribute to a sustainable future.

Types of Lending APIs

Onboarding API

Using the onboarding API, lenders can provide their customers with flawless, fast, and omnichannel onboarding experiences. It has traditionally been a lengthy, time-consuming, and inaccurate process to complete the onboarding process. Using the information, lenders can identify information such as loan amount, expected repayment period, and more. As a result, traditional onboarding processes now take minutes to complete.

Credit Underwriting API

APIs for credit underwriting help lenders prepare ideal loans for borrowers by providing relevant, accurate, and timely data. CIBIL and other major alternative sources are used to collect customer credit data and share it with lenders electronically. A lender’s internal system distributes data collected from various sources to the API program to enable lenders to make smart decisions.

Loan Fulfillment API

Loan processing APIs are used to process loans for customers and maintain credit account information so that the platform can bill and process the loans. Credit agreements are created digitally, published, and sent to borrowers and lenders after the credit is approved. The lender would debit the borrower’s account and credit the lender’s account to disburse the loan.

Loan Collection API

Loan collection APIs enable collection agencies to track and collect EMIs by allowing them to access the latest information about borrowers. Since APIs can be used to access a plethora of resources, financial institutions have been able to maximize the recovery of their debts while ensuring complete transparency. Integrating mobile and web platforms enables fast, paperless transaction processing and reduces risk by allowing fast, paperless transaction processing

How do these APIs Actually Work in Lending

Financial institutions can respond to evolving customer needs by integrating APIs into their digital banking products and services. APIs allow mobile check deposits, bill payments, and money transfers between accounts as part of digital banking. Lenders can benefit from APIs in the following ways.

The API allows lenders to access data from any third party, including government and non-government agencies, in order to make a quick decision regarding a loan application. APIs do not contain any data, so they are 100 percent secure and safe.
By utilizing APIs, lenders and financial institutions can integrate third-party vendors that have a good fit with their business model in comparison to the options provided by digital banking vendors.

Financial institutions can integrate APIs with services that will streamline the digital lending process. In this way, borrowers’ driver licenses and mobile phones can be integrated to provide pre-filled information to the lenders.

APIs allow workflow automation, which is a benefit of using them. As automation increases, fewer errors are made, monetary costs are reduced, and operations are more seamless. In order to fulfill your complex reporting requirements, APIs can be used to execute programs, collect data, and transmit data.

Authentication & Authorization- the two As that Make a Huge Difference

APIs are based on authentication and authorization, which can help you understand how they work and why some connections are approved and others are denied:

A connection attempt’s credentials are verified during authentication. During this process, credentials are sent from the remote access client to the remote access server either in plaintext form or encrypted form using an authentication protocol. Authentication is the process of determining whether a connection attempt is valid. Once authentication is successful, authorization occurs. Authorization, then, is asking if you have access to a resource. Authentication simply states that you are who you say you are.

Hence, authentication is important in maintaining security and validation whereas authorization gives the permission to have an access to the resource.

Summing up

APIs in the financial industry is the mainstay now as it unites financial institutions, fintech apps, and consumers together. These solutions bring new possibilities that financial institutions and fintech apps alone cannot provide, and have created a whole new world of financial services that are convenient, secure, and allow financial flexibility.