Businesses and industries have been constantly on their toes amidst changes in the market over the years, and the financial sector is no exception. The lending industry is changing due to digitalization and new customer expectations. Today, it is critical to use technology to streamline consumer lending while facilitating a strong cashless and digital economy. One of the notable developments in the lending industry is the use of APIs.
What are APIs?
If you’ve ever seen a website prompt you to “Sign in using Google” or “Sign in using Facebook,” you’ve seen an API.
API (or application programming interface) is a collection of definitions and protocols for developing and integrating application software.
In its most basic form, an API is a set of protocols and routines that allow two different applications to share or exchange data. APIs are created by developers so that software with limited capabilities can call on the functionality of other systems. APIs provide access to the data required to engage with potential borrowers in consumer lending safely. In the end, APIs assist lenders in making better lending decisions.
Types of APIs
APIs connect to an existing lender’s technology to enable communication and data transfers. APIs are classified into three types.
- Private APIs. These are commonly used internally by banks and traditional financial institutions. They increase operational efficiency and are frequently considered essential tools for lenders and other financial services stakeholders.
- Partner APIs. This type of API enables channel and product expansion and third-party loan document creation, allowing engagement between banks and third parties. They also allow banks to automate loans, increasing efficiency.
- Open APIs. Open APIs, as the name implies, are freely available for use by the general public. They are particularly appealing to lending banks because they make it possible for banks to make information universally available to any other bank or partner that uses APIs.
How vital are APIs in the consumer lending industry?
Applying programming interfaces (API) in fintech has revolutionized the commercial lending industry in recent years. It opens up a new world of opportunities – allowing information to flow between applications and institutions to easily access customer data, gain insights, and develop innovative products tailored to the consumer, market, and regulatory needs.
APIs are critical for lenders because they must send and receive data from multiple sources that would otherwise not interact with one another. Using APIs, lenders can quickly and easily connect with customers, credit bureaus, and other businesses.
How do lenders use APIs?
Improving borrower experience
Lending institutions use APIs to improve the borrower experience, reduce costs, and increase security. A consumer lender, for example, may provide an online portal through partner APIs for loan applicants to use when submitting applications and supporting documentation.
Partner APIs can also help speed up loan processing while providing additional security for sensitive customer data. They are frequently used to generate the loan documentation required for processing. Lenders gain the ability to close more deals by accelerating and automating some of the loan processes. Consumers benefit from partner APIs that enable automation because funds are disbursed more quickly, improving the customer experience.
Securing more quality information
Inaccuracies in consumer credit reports about the person in question may exist. Credit bureaus may sometimes list incorrect addresses, phone numbers, judgments, liens, and so on. If two people have the same name, a credit agency may make an error and include this information in the incorrect report.
Alternative credit reports assist lenders in validating credit report data because they contain personally identifiable information about other things, such as data on property ownership, contact information, bankruptcies, social security numbers, and history of addresses. In these cases, APIs are valuable tools for gathering this data from various agencies and validating the information and other details.
Accessing credit information
Lenders can utilize APIs, specifically credit APIs, to access credit reports. A credit API is a tool embedded in a website or app that allows businesses or consumers to access credit reports and scores. Companies and consumers both use credit APIs to avoid fraud. Some credit APIs are intended for business use, while others are designed for consumer use. Credit APIs for businesses will provide tools for fraud detection, identity verification, portfolio management, and other functions.
Final thoughts
Indeed, APIs have transformed the lending industry by allowing lenders to streamline lending processes, access customer data, and develop new products. They’ve allowed lending institutions to improve borrower experience and increase efficiency through easier access to credit information, validation of data, and interaction with third-party organizations.
