What are Fintech (Financial Technology) Services and How Open Finance API Fits in It?

Given that 25% to 50% of the adult population in Southeast Asia is still underbanked or unbanked, fintech is still considered relatively new. However, data shows that the fintech landscape has been expanding rapidly with no signs of stopping. There are around 249 fintech companies in Indonesia — a 78% growth since 2015. Moreover, the fintech industry in Indonesia is expected to reach US$3.6 billion in total investment. What are the driving forces of fintech’s vast growth in Indonesia?

In addition, Indonesia is the world’s fourth most populous country, with around 270 million people based on a 2020 survey. Around 20% of the population belong to the middle class, which creates a big opportunity for fintech services to tap in. Subsequently, what are fintech services without internet connection? The internet penetration in Indonesia has reached 195 million in 2021, covering 71% of the population. Furthermore, the government is committed to develop more infrastructure and increase accessibility.

Unexpectedly, the COVID-19 pandemic hitting the region (and the world) has sped up the uptake of digital financial services. Most of the unicorns reside in Singapore and Indonesia, among them the largest fintech companies in the region. They offer fintech services to their end users.

But are those services limited to only the B2B market? Are fintech services available and suitable for the B2C market? What exactly are fintech services, and what is their implementation in our daily lives? These questions will be covered in the article.

What exactly is fintech?

Fintech is not merely about using technology in the finance industry. Any new technology that aspires to enhance and automate the usage of financial services might as well be referred to as "fintech" or financial technology. It encompasses all services that help manage your finances. For instance, real-time deposits using a mobile bank app, adding your recent transactions to a digital budget planner, or even ordering an online taxi with a stored credit card. Broadly, fintech describes any company using the internet, mobile devices, software technology or cloud services to perform or connect with financial services.

With the aid of sophisticated software, applications, algorithms, and hardware, fintech services are able to complete traditional financial transactions like money transfers and bill payments remotely. Most importantly, fintech introduces new concepts to the market, such as peer-to-peer lending and cryptocurrency. As a result, it helps both business owners and consumers better manage their financial activities.

There is so much more about this technology that will affect how we do banking and other fields. This term originally referred to banks and other financial organizations' technology to improve their back-end systems. But over time, its connotation has changed to include services geared toward consumers. As a result, the emphasis has changed from producers to consumers.

Types of fintech Startups and Businesses

Fintech is not just for startups anymore - even traditional banks and established financial institutions are using fintech services to improve their businesses. Artificial Intelligence (AI), Blockchain, Cloud Computing, and Big Data are considered the four key areas of FinTech. Artificial intelligence refers to the intelligence demonstrated by machines, in contrast with “natural intelligence” displayed by humans and animals.

Of all the technologies that have impacted financial services, the distributed ledger technology that underlies blockchains and makes cryptocurrencies possible is arguably the most significant. Blockchain companies and applications are a growing part of the fintech ecosystem. Blockchain engineers design, build, and maintain decentralized blockchain applications like cryptocurrency exchanges, lending applications, and voting platforms.

AI is assuming an increasingly important role in traditional banking as it provides technologies such as voice recognition, natural language processing, and computer vision for user-account management and fraud detection, machine learning methods and deep learning networks for anti-money-laundering and credit modeling.

Today, fintech has made it possible to invest, borrow, save and transfer funds through online and mobile services without ever stepping foot inside a bank. Though traditional institutions were slow to adopt fintech solutions, both startups and established companies are betting on digitized financial services. Here are some Fintech examples that are currently thriving.

• Mobile Banking and Neobanks
• Digital Wallets
• Cryptocurrency / Blockchain Fintech
• Fintech Investment and Savings
• Fintech in Insurance (Insurtech)
• Fintech in Investing & Trading (Using Machine learning)
• Payment Services Fintech (Mobile payments)
• Lending Fintech (For Digital lending and leasing)
• Embedded Finance
• Budgeting apps

Examples of fintech services

Now we know the meaning of fintech, but what about the services? What services does fintech offer?

Financial technology companies are mostly faced with two options. Should they overtake an established company or buy a licensed business to bring forth new products and services? Or would it be more feasible to invest time and money in developing their own infrastructure from scratch?  The largest fintech companies wishing to supply financial services and goods must decide between buying already-established, licensed businesses or investing time and money into developing their own technology from scratch. Enter open finance API, a solution that helps support existing assets in a fintech company. Therefore, fintech companies can invest in a reliable open finance API to engineer new innovations. A fresh wave of innovation from both the public and commercial sectors is assisting in promoting greater inclusion in many countries, but it is still expensive to provide financial products to this market.

What are fintech services that are made possible by open finance API? Here are some examples that you may be familiar with:

1. Digital lending and credit

Digital lending companies provide micro-loans to consumers—some largest fintech companies can even lend money to people from many countries. One example is UK-based Funding Circle, a global lending platform where investors from all over the world can lend directly from small businesses across the UK, US, Germany, and Netherlands.

In Indonesia, the accumulated amount of fintech loans reached IDR54.72 trillion as of December 2019. This remarks the appeal of fintech lending services in Indonesia. Financial data API makes it possible for fintech companies to assess, approve, and monitor loans in an instant.

Technological advancements are all made possible using big data and sophisticated analytics across digital platforms. Compared to banks and loan sharks, consumers have more options. Some fintech applications do this with a deep data dig on their smartphone to learn more about their transaction history and even the types of games they play. Consumers get better options than local banks and unregulated lenders.

2. Personal finance management

As mentioned, fintech innovations now allow consumers to manage their financial activities better. Users can now easily access their finances anytime, anywhere, no longer restricted by time and space. Nowadays, users are more familiar with digital financial advisors and financial aggregators.

A report from State of Mobile 2022 stated that the number of financial app downloads reached 5.87 billion worldwide. Personal financial management services have become a sought-after product. Even digital banks and investment apps team up to create financial planning program.

Various Fintech companies such as Personal Capital, Lending Club, Wealthfront have emerged in past decades while rendering new strategies on financial notions and making users allowed to hold more viable financial outcomes.

3. Mobile banking and payments (e-Wallet)

Using a phone, we can send money to friends and family using e-wallet apps like GoPay or DANA. Open finance API keeps the mobile banking services updated. Now, users can set up automated bill payments from their e-wallet accounts. Ayoconnect, an open API provider, assists DANA and Bank Mandiri in establishing their autobilling features.

Digital wallets, like Apple Pay and Google Pay, allowing people to store their payment information in a mobile app, and then use that app when it comes time to pay for something. E-wallet speeds up the processes that previously took hours or days to accomplish. Who here remembers 'Cashier Checks'?

4. Insurtech (Insurance + Fintech)

Traditional insurance companies are also beginning to incorporate Fintech solutions into their product offerings. The term “insurtech” refers to the application of technology to the insurance sector to increase efficiency and optimize savings. By innovating time-consuming procedures like underwriting, claims processing, and immediate activation, insurtechs are changing the insurance client experience.

5. Buy now, pay later (BNPL)

This fintech service is mostly associated with e-commerce transactions. In recent years, the buy now pay later (BNPL) service gains public’s attention as a new alternative for credit card and personal loan. What makes the BNPL so attractive is its low interest rate and the ability to make a large purchase in seconds, without applying for a credit card.

The process is similar to how P2P lending operates, relying on an open finance API to complete the Know Your Customer (KYS) procedures. On another note, the BNPL landscape has a bright future, particularly in the Indonesian market. The Business Wire expected the BNPL service to grow by 94.7% in Indonesia and reach US$2.7 billion by the end of 2022.

6. Banking-as-a-Service (BaaS)

Fintechs can offer the goods and services of a financial institution under their own brand by using banking-as-a-service (BaaS) or white-label banking. To use a BaaS platform from any financial institution, a fintech company must also obtain the banking license, regulatory know-how, fraud management, and other related credentials. These will be charged by the financial institution. On the other hand, all of these fintech services require an open finance API to operate.

Fintech companies expand reach with Open-finance API

Open finance API facilitates fintech companies—and investment banking companies—to be in sync. What it means is that API enables data sharing across platforms. This creates an advantage to collaborate with other companies. For example, if a digital investment app plans to increase customer retention, they can work together with an e-wallet app to create new limited offers.  APIs can make it easier for the providers of fintech services to access consumers’ data, transactions, and payment history when working with financial applications.

Previously, banks used APIs primarily for internal purposes, such as storing data and a server that could “talk” with other servers within the office. APIs were designed to be flexible, not accessible. Today, open APIs hold a crucial role in modernizing the financial industry.

Open finance API opens doors to a new range of financial products

Through the meaning of what are fintech services, we know how open finance fits in it. Many fintech, including the largest fintech companies, are creating new financial services based on these platforms to satisfy the specialized demands of the people because of the transparency and agility that APIs enable.

According to a Boston University study, 30% of global revenue will be earned using APIs by 2025.

Indonesia to embrace open finance API

Open finance API is not only a development tool to expand financial products and services, but can also be the product itself. For businesses, open APIs are must-have items if they wish to break through the market. As for customers, the integration of open APIs has made it easy to utilize multiple services in one or two platforms. It becomes more common to have one superapp that consists of various online channels, including fintech services.

Companies can utilize open APIs without having to build one from the ground up. Ayoconnect, for example, is the largest open finance API provider in Southeast Asia. By offering relevant infrastructure services to many digital service providers, including the largest fintech companies in Indonesia, Ayoconnect can effectively and efficiently deliver relevant financial goods to clients.

Ayoconnect provides many solutions for companies across Asia, such as direct debit API which allows companies to accept direct payments from customers’ account with one-time integration, embedded finance which connects over 1,000 service providers with more than 200 customer platforms, and insight API to access and extract a vast data source. Ayoconnect is certified by the Ministry of Communication and Information Technology and is a trusted partner of several largest fintech companies in Indonesia.

To accelerate your business growth, get connected with Ayoconnect and choose the best solution for your company.

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