The last decade has been one of the most transformative periods for the global banking industry, at least from a regulatory standpoint. It has obligated financial institutions to transform, with authorities taking unprecedented steps to ensure that consumer protection is maintained despite the amount of business that banks conduct.
One of the most comprehensive transparency initiatives is open banking, which requires that big banks share customer data with third parties. Meanwhile, behind this whole process lies a bank API (Application Programming Interface).
What Exactly Are APIs?
Traditional APIs are technical interfaces to software programs. As smart devices use bank APIs to deliver services to customers, they have become increasingly sophisticated. They are integral components of the Internet of Things (IoT). In some cases, a customer could pay for an item in a store with a smartphone, which would then make an API call to update the balance on the customer’s bank account after the purchase.
Through an interfacing process, a third-party application can access a bank’s valuable data, services, tools, and assets, such as financial data, customer accounts, and product catalogues, in a banking context. Through APIs, the bank and the third party can connect in a quick, convenient and cost-effective manner.
As a result of having access to valuable customer data, customers can potentially have a better overall experience when conducting their financial affairs. For instance, an API could examine customer-transaction data to determine which financial products are most appropriate for that customer, such as a lower-interest credit card, a specific loan product, or a higher-interest savings account.
On the same note, the following are the main types of APIs being deployed by banks at present:
- Private API: This API is accessible only within the financial institution and is therefore used to improve internal processes, such as boosting operational efficiency.
- Partner API: A more open API that can be accessed by the bank’s preferred third-party partners is known as a partner API. These 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.
- Open/public APIs: Not as commonly used at this stage, open/ public APIs involve making business data available to third parties. Banks can deploy such APIs to generate additional business and grow their customer bases. For instance, the bank could enable an API for a loan-comparison application which would allow it potentially to acquire new business from customers shopping for new loans.
Impact of APIs in the Banking Sector
To meet the increasing customer expectations, organizations are discovering ways to offer value-added propositions, from improved payment options (for example, digital wallets) to scam alerts on wearable devices and more.
More banks and financial institutions have recently begun experimenting with the monetization of the APIs (application programming interface) and standardising the Open Banking APIs banking possibilities. Financial institutions are taking this path, owing to the Fintech capabilities that can transform the industry and enhance the experiences of bankers and customers. If financial institutions continue to adopt API technology, the entire industry will start to see changes in the way users handle the data, and services integrate. This will result in cost-effective and efficient banking operations.
APIs, when adopted by financial institutions and banks, open up a whole new segment of services that can be provided seamlessly by third parties. In this way, both banks and third-party companies can enhance their specialities and offerings to their clients.
APIs in the banking and financial industry allows financial institutions to connect smoothly with businesses and customers. APIs allow banks to more effectively transfer information and expand the range and depth of services they offer. Due to the numerous capabilities of APIs, they may have a great deal of impact on the future of the financial market.
By offering innovative services using APIs, traditional banks can retain their existing customers. With OpenPayd’s simple, developer-first API, you can build a banking and payments service that grows and changes as you do. This can help to increase bank appeal, making financial data more accessible to customers in advanced ways. Get in touch with OpenPayd today!