We have observed that the banking industry has transformed after the advent of the Application Programming Interface (API) or API banking platform in the past 10 years. API invented the new method of distributing the software & data to another system by combining all the functionality of one application to another via APIs. Moreover, the establishment of API marketplace banking has also helped several enterprises triple their revenues.
Have you ever wondered how your smartphone helps you pay while you order things online? The device doesn’t keep your banking information and neither does the app that you use. So where does all this information come from?
Here in this case above, all such required information is passed on to us with the help of bank APIs.
What Is Banking API?
Application Programming Interface is nothing but software acting as an intermediary between all systems and softwares. However, it plays a significant role in the banking sector like banking as a services industry.
Types of APIs
- Private APIs — Most commonly used within the traditional banking organization, private APIs help enhance operational efficiency and are viewed as essential by the vast majority of banks.
- Partner APIs — Typically occurring between a specific third-party partner and a bank, partner APIs allow for expansion, especially in relation to new channels, products, etc.
For example- through an API partnership, a bank could work with a separate third-party company to automatically create loan documents in relation to loan applications. This would also allow the bank to automate loans, increasing efficiency. Most banks will gradually transition from private to partner APIs.
- Open APIs — The least commonly used type of API, this structure involves making business data available to third parties. In this case, banks are often concerned with the security of data and other sensitive client information.
The rise of API banking
It all dates back to 2016 when the Competition and Markets Authority (CMA) in the UK asked several top banks to provide access to their data to third-party applications. This decision was however a result of many small steps taken on the road to Open banking. Later on, PSD2 came into the picture and made a significant contribution to the development of Open banking.
In the same year, RBI launched the Unified Payments Interface (UPI), which played a pivotal role in the rise of banking APIs in India. This process of sharing customer data via bank APIs was termed ‘API banking’.
Based on the Services availed, and the plan selected, applicable fees shall be charged and any additional terms which specifically govern such Service shall become binding on such User.
A year later, Forbes announced 2017 as “The year of the API economy”. With this new ecosystem came new opportunities. Since then there has been an increase in API providers.
The adoption of API banking also fueled the growth of new entrants – neobanks and challenger banks. They are slowly developing a niche in India, and their market size is expected to reach $15,000 mn by FY27.
API banking also brought changes to the way banks and fintech organizations work. Let us look at the major shift that happened post the open banking movement i.e., allowing access to bank data via APIs.
The Role of API In the Enterprise
API is nothing but a product and service for enterprises. Developers in the enterprise emphasize how APIs can be more useful for the business and in what way, they can fulfill all requirements of a business. In the modern world, API precisely means a restful service. But now the majority of the APIs adopt HTTP as a transport.
Additionally, API tools enable businesses to make use of all the data available on the server and then create new business opportunities. And, improve your existing services and products to improve customer satisfaction.
The Working of Banking Associated With APIs
API Banking is fairly simple and can be explained in a three-step process. The diagram below shows how an API provider helps any fintech (neobanks, lending firms, etc.) or service aggregator companies (Uber, Zomato, etc.) open bank accounts for their employees.
Due to the complexity of direct integration with the banks and lack of proper documentation, API providers simplify the herculean task of integrating with banks.
Benefits of API Banking Platform
Capgemini’s World Fintech report 2019 states that close to a whopping 89% of banks leverage APIs to collaborate with fintech as part of their business strategy.
- The main benefit of API is the elimination of unnecessary procedures from the banking process. In other words, it ensures speed and ease of use for financial service providers.
- APIs are a bank’s gateway to digital transformation. They can easily gain customer insights and provide an abundance of services to provide a larger value chain to their customers.
- As for customers, API banking provides them with access & benefit from different product offerings. When it comes to B2B customers like SMEs and Startups, they benefit from having access to services like virtual cards, expense management, accounting mass payouts, etc.
Manage Your API MarketPlace Banking With DigitalAPICraft
DigitalAPICraft is the right platform that you need to approach. We’ll help you to create a rapid API ecosystem that delivers higher ROI. It will be beyond your imagination. When you choose, you’ll be entitled to the following benefits mentioned below:
- Increase revenue
- Stimulate business and technical innovation
- Ease integration of backend data and applications
- Extend customer reach and value
- Support sales and marketing activities
- Wider Customer Scope
- Infinity Business Opportunitie
Looking at the recent API banking trends, one can say for certain that it will continue to evolve & grow to provide more evolved services to customers. DigitalAPICraft provides you customized & robust API banking platform and helps you to create revenue-generating API marketplace banking.
