The (Literal) Cost of Fintech APIs
Your API vendors know your cost and usage - why don't you?
Rohit Mittal, Co-founder/CEO of Stilt, tweeted the words right out of my mouth. Fifty contracts isn’t even an exaggeration. As you sign each contract, you’re guessing at the expected volume which dictates how much you’ll pay. Your favorite engineer will implement the API to the best of their ability, push to production, and hope for the best.
Why does the sales rep know my usage and I don’t?
It’s not until a sales rep reaches out asking you to increase your contract size that you realize costs are way out-of-line. They might even show you a nice little Excel spreadsheet, that you’ve never seen before, showing how much of their service you’ve used and how much more you should be paying.
After all, it’s not a level playing field – vendors are spending countless dollars to accurately track usage, while you’re focusing your energy on trying to deliver the conversion rates and business benefits you expected when you selected the vendor.
Cost is rarely the reason you pick a vendor, but having an accurate understanding of the cost structure of a new API integration can be the difference between sticking with a vendor and needing to start a new initiative to replace them. Early visibility helps you accurately forecast unit economics, build confidence in committing to the vendor, and helps you defend your decision internally when that first big invoice hits. Perhaps most importantly, it arms you with the information you need when a sales rep asks you to double your commitment at renewal time.
If you work in FinTech, you’ll be consistently onboarding a lot of 3rd party APIs; cost management is a skill you’ll want to have. So what should you do during the first 90 days of working with a new API vendor to set yourself up for success?
Document your conversion rate assumptions
When selecting between vendors, the type of customer experience each vendor offers can vary significantly. For example, some income verification APIs require just a SSN from users while others require users to connect their bank accounts. Vendors often charge a premium for a more seamless user experience, since it translates to higher conversion rates. But is it worth it?
By understanding what your conversion rate is likely to be, and documenting it in advance, you can make informed decisions and ensure that your API integration remains cost-effective.
Estimate total cost of ownership
It’s not enough to understand your vendor’s price list – you need to figure out how much it’s going to cost you to implement, test, maintain, and use the service. Consider these key aspects:
Early Development Costs: Account for initial development and scale testing expenses required to integrate and ensure the API can handle expected loads.
Internal Usage: Factor in the costs of using the API for internal projects, such as data science models and new feature exploration.
Maintenance Costs: Include the costs of regular testing to maintain reliability and performance.
Product Usage Costs: Estimate the cost triggered by customer interactions with the API, based on forecasted customer demand.
Some vendors give free credits for development and testing; be sure to ask for them if they’re not proactively offered when you’re negotiating the agreement.
The cost of instrumenting … cost
Instrumenting cost for every new API vendor can be an incredibly complex engineering exercise and a never-ending battle. You’ll want to instrument every specific pricing framework for each vendor. Cost instrumentation also seems like a ‘nice to have’ when you’re just trying release a new feature.
Though, if you overcome this complexity, it can pay massive dividends down the road. Two important things to monitor:
Source of Usage: Determine whether costs are coming from an internal service, internal user testing, or a product integration. If it's from a product integration, pinpoint where in the customer journey the costs are being incurred.
Reason for Usage: Use detailed tags to track and understand the queries driving your costs, such as data science experiments, new customer applications, repeat applications, and unit testing. These tags are crucial for forecasting usage as customer demand evolves.
By putting in place robust cost instrumentation early, you can save yourself a lot of future anxiety when you get a big invoice.
Validate your assumptions
Within the first 90 days of implementing a new API service, you should review your conversion rates and costs to validate your initial hypotheses and build confidence in shifting your focus to your next initiative. A couple of things to keep in mind:
Review All Conversion Rates: Assess how the new integration impacts your overall conversion rates. Changes in the customer journey due to the new service can have unexpected consequences, so it’s particularly important to do a holistic review.
Compare Projected and Actual Costs: Was the first invoice what you expected? Can you confidently forecast the next one? Costs can be difficult to project early on, but monitoring them early and often is the best way to ensure they don’t run away on you.
The takeaway: Don’t fly blind
Let’s get real: integrating a new API can be a headache. Sales reps often promise the moon, usage volumes are impossible to predict, getting comfortable with a vendor’s API always takes longer than expected, and execs rarely have patience for early hiccups.
But here's the kicker—just when you think you’re on autopilot, it’s time to negotiate the renewal. If you haven’t kept a close eye on your costs and usage, these talks can feel like a cold splash of reality. A sales rep can show you a forecasted usage number that’s completely different from your own expectations, and leave you scrambling to justify internally why you shouldn’t be considering alternatives.
Using the best practices outlined above, you can walk into renewal or internal planning discussions with a clear view of what a vendor is worth and if you should consider making a change. Perhaps even better, you’ll avoid internal debates and have peace of mind that you’re making the right call.
About Supergood
We built Supergood to automatically solve the many problems that come with third-party API integration, cost management, and maintenance.
If you don’t want to spend your evenings troubleshooting vendor schema changes, responding to false alarms, or answering exec emails about cost surprises - reach out to us at hello@supergood.ai. It only takes five minutes to install Supergood. We’re like an extra engineer that’s just focused on debugging and fixing vendor APIs.
These third-party integrations should just work as described, let us fix their bullshit. You have enough of your own code to worry about.