What is an API?
An API, or Application Programming Interface, is software that allows two applications to communicate with each other. In essence, APIs consist of code and protocols that deliver user responses to a system and the system’s response back to the user. APIs are important because it provides access to data between different applications, services, or operating systems and allows them to interact with each other. With technology evolving, banks are starting to use APIs to stay competitive and offer customers more third-party integrations.
The Four Uses of Banking APIs
- Integrating new systems – New technologies are consistently developed and bank institutions using older systems and code struggle with integrating new systems. APIs allow older applications or existing banking systems to communicate with newer applications such as mobile applications. Doing so allows for a smoother integration.
- Connectivity between systems: APIs enable real-time communication between banks and applications that need information from a user’s bank. Updated information can be shared effortlessly with the right applications via APIs and the amount of information shared can also be regulated. Regulating what information is shared between platforms helps protect the user’s privacy.
- Indirect platform banking: With the use of APIs banks can offer their services to other businesses as an additional integration. Using technology like APIs makes the connection between the two seamless and easy. Allowing businesses to offer bank services within their own platform also helps expand the bank institution itself and increase revenue.
- Innovation: The ability to integrate new technologies by using bank APIs helps to create more opportunities for financial institutions and their customers. New technology means banks are able to create and offer new products and services.
How API is used in banking
As previously mentioned bank APIs are valuable for integrating new technology into banks. Some ways that APIs are used within banking are account information, account authentication, and analytics. APIs allow banks to offer additional tools and products to customers. Financial institutions that can offer the best customer experience while maintaining safety for their customers will need to do so using technology. Banks that offer mobile banking apps or seamless use with other platforms and services are in high demand. One example of how APIs are used in banking is connecting banks with third-party services to help manage or view credit scores or mortgage tools. The use of API banking helps solve specific problems such as canceling or changing payments on short notice and managing internal roles or responsibilities. Using code and automation within APIs means that common problems can be solved efficiently. Although API usage creates advantages for customers and the financial institutions they use there are different types of APIs; each with its own levels of functionality.
Three types of APIs
- Private APIs: These help operational efficiency and are used within traditional bank organizations.
- Partner APIs: This occurs between a third-party bank partner and the bank itself. One example is to automate the loan process through a financial institution and allow for a third party to offer that loan to their customers.
- Open APIs: This structure involves sharing business data with third parties.
Benefits of API Banking
Since banks have begun using API technology within their institutions some key benefits have been increased revenue streams, gaining access to additional data on their customers, ensuring easy integration for future innovations, and most importantly, the benefit of improved customer experience. API banking offers customers more customization, efficiency, and speed. APIs can also improve existing workflows within an organization and reduce any human errors that might otherwise occur.
Conclusion
Whether your bank offers open banking or has a traditional customer experience, APIs are becoming a standard within financial institutions. To experience banking that is technology-driven learn more about TAB Bank.
