Updated on October 07, 2022
10 min read

In the past few years, Application Programming Interfaces (APIs) have primarily transformed the banking sector! This transformation started back in 2016 in the UK. It happened when the competition and markets authority (CMA) asked some top banks to grant access to their user data to third-party applications.

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It originated the demand for banks to share their data with fintech and related applications or websites. Various institutions, like CitiGroup, Wipro, Silicon Valley Bank, Nordic Bank, and DBS Bank started launching their API-based banking services. It implied that there was a significant impact of fintech on banks.

According to research by McKinsey, at a global level, 75% of the top 100 banks have made public APIs available in 2022. But, if we talk about all the banks put together, this number is proportionally smaller.

According to Deloitte, only around 22% of the banks have established their API platforms by 2021. And nearly 39% were working on establishing them. It suggests that using API for data and service sharing is still a work in progress but has increased significantly.

What are Banking APIs?

APIs bridge the gap between two applications by allowing them to communicate (share the data).

Whereas banking APIs help banks to communicate (share the data) with third-party fintech companies. The main aim of these APIs is to make the baking process easy, seamless, and convenient for users.

With the help of banking APIs, banks can improvise their services & increase revenues. At the same time, third-party fintech companies can utilize the shared data for innovation & expansion of their services and improve the customer experience.

For example, a banking API is used to create a mobile banking fintech app for customers. This app allows them to enjoy various banking services such as connecting their cards to the app, checking account balances, paying bills, transferring funds, and many more at their fingertips.

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Types of Banking APIs

The Banking API helps various companies in creating seamless and innovative customer experiences. There are 3 different types of Banking APIs. They are:

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1. Partner APIs

Here, the bank uses an API only for a specific set of third-party companies. And, then the bank partners with these companies to solve a common problem. Platform APIs help the banks to give exclusive access to their data to only these sets of companies.

For example, if a bank receives numerous applications for credit cards. In that case, the bank can partner with the desired third-party companies to automate the data collection process of credit card applications.

2. Private APIs

The banks create internal APIs for improving the operations of the banking services that they provide. These are the private APIs.

Banks create private APIs so that they do not need to make new systems and software every time they want to make enhancements to their services. This way, it becomes efficient and cost-effective for them.

3. Open APIs

The APIs through which banks can share their user data with third-party companies have become more prevalent nowadays. These are the Open APIs. Through this API, the data can be granted to any third-party company, irrespective of any prior formal relationship with the bank.

Read More: Mobile banking: Transforming banks across the globe

How Can Banking APIs Be Used by Fintech Companies?

For Fintech, the process remains the same as the third-party company and bank relations. Here, the banks and Fintech companies communicate or share data and services through an API.

To understand it better, let's break it down into three simple steps:

  1. The fintech companies contact a financial institution or bank for the user data they need and pay a fee attached to it.

  2. The financial institution or bank opens an API for them to grant access to their user data (sensitive or non-sensitive)

  3. The fintech companies utilize these data to improve their application processes, expand their customer base, and bring new innovative services to users.

APIs help them get to the same page and interpret each other’s functioning, programming languages, and various other technical aspects. It enables safe communication of data between both parties and keeps financial security in check.

Read More: Impact of fintech in banking sectors

Benefits of APIs in the Fintech and Banking Sector

APIs have created an uplifting environment for both banking institutions and fintech companies. The APIs fintech benefits are

Reduces Overall Costs

A single API can help in developing multiple products and services. It means that the costs involved in creating various features, and functionalities all from scratch will drop significantly.

And even if the usage of an API may have a certain fee, it is still less costly than maintaining your own infrastructure and fintech integrations of complex functionalities needed in the fintech application.

Improves Customer Experience

Sharing user information is always a sensitive topic and in the past, banks didn’t feel comfortable sharing customer data. But, now with fintech API and its more secure frameworks, banks feel safer sharing the information. As a result, the customers can ask for their data for any third-party fintech apps that they want to use.

The fintech apps mainly work on making the customer experience better and more innovative. So, the data shared by the banks will be put to the right use by them. It will ultimately lead to enhanced customer experience for banking and related fintech services utilized by the users.

Seamless Operation Process

The fintech apps provide mobile banking, online banking, wallet services, and much more. APIs allow fintech and banks to provide banking services quickly and efficiently. It creates a seamless operation process for the customers.

APIs enable users to manage their banking operations directly through their mobile devices. It is safe and can be done from anywhere and at any time. This way, the customers can save so much of their time and effort.

Increase In Customer Base

As discussed, the web service API connects the banks and fintech to communicate the data of the customer onboarding in banks and related services with each other via the APIs. It happens, because of the increase in demand for third-party applications in the current digital scenario.

It ultimately benefits banks and fintech companies to enhance their services and bring the latest innovations into the market. It drives the users to keep using the services and converts the non-users into users. Hence, the customer base increases automatically.

Helps With Compliance

Banks with APIs can also share their user data with the government and security regulators. So various security standards like GDPR and PCI DSS are also kept in check.

This way, the security risks while sharing sensitive information with third-party companies are resolved. APIs also help in complex security compliances such as KYC, data encryption, and security authentication to make digital fintech solutions more secure.

Use Cases of banking and financial APIs

Empowering Banks and Neo Banks

Banks often have their own APIs that they usually provide to non-banking businesses. It allows them to offer various banking and financial services to their customers. This helps banks to expand their service horizons.

Similarly, Neo banks (Digital banks with no branches) are backed by various banks (having multiple physical branches), and integrate the banking APIs to provide major banking services in digital form. Now, the neobanks are able to offer the services like personal checking accounts, money transfers, loans, and savings accounts without any physical branch. Some popular API-enabled neo-banks are Chime, Monzo, Varo, and Revolut.

E-Wallet Payment Industry

With digitalization, the use of online wallet apps has increased significantly. These apps aim to provide innovative and seamless payment services to their users by integrating banking APIs. Apps like Google Pay, PayPal, Venmo, Square, and Stripe, allow users to send money domestically and internationally, directly through their bank account.

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Telcos

Telecom companies integrate banking APIs to provide their customers with multiple payment options. Verizon is one example of a telecom company using APIs.

Also, there are various payment apps that integrate telecom APIs with their app to enable users to make their recharges and bills through one single app only.

For example, Ding is a mobile recharge app that helps customers to make recharge payments for friends and family in almost 150+ countries and with more than 500+ telecom operators integrated into the app.

Cryptocurrency

Various cryptocurrency apps like Binance, Coinmama, Zebpay, and WazirX, allow users to add their bank details, and debit/credit cards, deposit funds, make investments, and withdraw money in the accepted currency. This is possible due to banking APIs integrated into these apps.

Investment and Savings

Fintech has brought a revolution in the investment and savings industry. There are numerous apps in the market that enable users to invest their money. APIs make these apps so smooth to use that even beginners can invest and save their hard-earned money with ease. Some of the best examples of investment and savings apps using banking APIS are Stash and Betterment.

For Lending Loans

APIs help banks streamline and simplify the loan process for customers, based on their earnings and credit scores. It makes the process of lending money quick and easy for both the banks and customers. Also, it helps loan providers to expand their boundaries of availing credit for the underserved population.

Examples of API-backed loan apps are Brigit, Bankrate, and Aella Credit.

For Insurance Services

Insurance companies use banking APIs to provide insurance services quickly and effortlessly. Also, certain InsurTech companies collaborate with insurance companies and banking institutions through APIs to expand their services and boost automatic insurance processing.

Some of the best examples of companies providing API-integrated insurance services are Lemonade and PolicyGenius.

Entertainment Apps

Nowadays, online entertainment is increasing. So, people prefer watching tv-shows and movies on their mobile devices only. OTT platforms like Netflix, PrimeVideo, and Hulu come with subscription plans.

A user can use the OTT platform by paying a certain amount of subscription fee. These platforms integrate various banking APIs to allow users to make payments from various cards and enjoy the platform's services.

API Market

The increased demand for APIs encouraged the banks like BBVA to create a fintech API Marketplace. This platform was created for developers to find various banking and financial APIs in one place and avoid the hassles of creating APIs from scratch. Another leading company in this field is TrueLayer providing the best APIs for fintech developments.

Price Comparison Websites

There are price comparison websites like GoCompare that compare prices of various products like insurance, loans, mortgage, rent, broadband, travel, and mobiles through some of the best fintech APIs. Here the API performs the analysis of the products listed on the website and provides the best prices to the customers. Various other examples of these kinds of websites are BizRate, PriceGrabber, and Pronto

Conclusion

Today, banking APIs have become a widespread concept, making their future even brighter. With almost every fintech business demanding for APIs, there will be an extensive adoption of financial APIs in the future.

With the increased demand for fintech apps, fintech businesses are growing quickly. Which in turn is also increasing the competition. So, to succeed, the fintech apps need to stand out.

Moreover, banking APIs and fintech apps are a perfect combination to drive innovation, expansion, and business growth. Hence, the fintech and the banking institutions that will opt to use banking APIs in their business will be the future leaders in the fintech and banking industry.

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Nikunj Gundaniya

Product manager of Digipay.guru, one of the leading digital wallet solution. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work.

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