What are banking APIs and why do they matter?

Whatever you think the future of banking will be, it’s pretty clear that the banks of the future will be different than today. Incumbent banks are making their banking infrastructure available third party providers to accelerate innovation. One by one, banks have been recognizing the importance of embracing an API Open Banking model to accelerate innovation.  

But what are banking APIs? 

API stands for Application Programming Interface. An API is a software intermediary that allows two applications to talk to each other.  In other words, an API is the messenger that delivers your request to the provider that you’re requesting it from and then delivers the response back to you. In the world of banking, APIs allow financial institutions to enable the secure and convenient transfer of customer information instantly and securely. This in turn would allow financial institutions to leverage data to improve the quality of their products and services.  

So, why do they matter? 

This technology has already made quite an impact in shaping the way businesses operate today by stimulating a healthy competitive environment that drives industries towards innovation.  APIs provide institutions with the freedom and choice to create new products, offer new services, and enhance their competitive positioning.  

As more financial institutions start embracing an API based economy, we will witness a shift in the industry to focus heavily on improving the overall customer experience and offerings. Open banking platforms will permit businesses to not only connect with consumers in the most seamless way possible but also understand the needs of their customers in a better way.  

 Open banking offers great promise to banks, corporates, fintechs, and other financial institutions. Yet without a marketwide attempt to standardize the application programming interfaces — crucial to enabling such a system — these opportunities will be lost. 

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