Banking with API(Application Programming Interface)

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In a banking context, this interfacing enables a third-party application to access a bank’s common tools, services and valuable assets, such as financial information, customer accounts and product catalogues. In doing so, APIs make it quick, convenient and cost-effective for the bank and the third party to connect. And by facilitating access to valuable shared customer data, customers can have a potentially better overall experience when conducting their financial affairs. For instance, an API could analyse customer-transaction data to ascertain which available financial offerings are most suitable to that particular customer, such as a lower-interest credit card, specific loan product or higher-interest savings account.

APIs have become especially important to banks during the last couple of years, ever since the Revised Payment Service Directive (PSD2) came into effect across Europe in January 2018. This directive has expedited the development of APIs so that third parties such as fintech (financial-technology) companies and online financial-services vendors are developing apps and services that can most benefit from the data they can now procure from financial institutions.

Three main types of APIs are being deployed by banks at present:

1. Private API: This API is accessible only within the financial institution and is therefore used to improve internal processes, such as boosting operational efficiency.
2. Partner API: A more open API that can be accessed by the bank’s preferred third-party partners. As such, partner APIs can facilitate greater expansion through new channels than a private API. Such partners could include clearinghouses, brokerages and custodian banks, and they can provide services to their customers using the bank’s platform.
3. Open/public APIs: Not as commonly used at this stage, this API involves making business data available to third parties. Banks can deploy such APIs to generate additional business and grow their customer bases. For example, the bank could enable an API for a loan-comparison app, which would allow it potentially to acquire new business from customers shopping for new loans.

As such, banking APIs—especially open APIs—are now playing a crucial role in helping lenders transition from traditional banking to open banking, allowing third parties to utilise banks’ services or indeed offer the same services to their own customers. They also enable businesses to more seamlessly connect with their consumers than was previously possible, which in turn should improve the customer experience. A digital wallet, for instance, helps to provide payment services. Or the customer could use GPS (Global Positioning System) tracking with the bank’s API to locate the nearest branch or automated teller machine. Customer-specific APIs are also being created with the appropriate levels of security to provide customers with their own individually tailored banking information—such as account alerts, bill payments and fund-transfer services—allowing them ultimately to gain better control of their finances.