Over the years financial technology, also known as fintech, has been evolving at a rapid and exciting pace. The most recent evolution in the future of fintech is the introduction of API into banking.
Banking API has been making waves in businesses across the world, inspiring innovation, and creativity in many companies. API technology has allowed businesses to have an easier time working with banks to create lucrative products centered around banking services.
API for the banking sector can take a company further. For a company that aims to build products in this fashion, API banking would be beneficial to implement.
What Is API in Banking?
An API(Application Programming Interface) is a technological innovation that allows different software applications to communicate and share data with ease. This is exactly how API in banking works. Banks can securely share their services with third-party businesses easily. API makes services more personalized and interactions with banks more quick and efficient, with no unnecessary hassle. APIs are versatile technological innovations with a multitude of possible functions and implementations, which is especially true for banking.
Applications of API Banking
There are a variety of uses for API in Banking:
- Development of banking apps and websites for banks
- Embedded finance: implementation of embedded payments, embedded lending, etc
Not only does API technology benefit interactions between third-party companies, banks, and customers, but also has other applications.
Other Applications of Fintech With API
Here are some other examples of financial technologies that can be positive for a business:
- Peer-to-Peer Payment Apps
- Virtual Financial Advisors
- AI-Assisted Customer support
- Giving Accounts
The 3 Types of APIs Used in Banking
There are three different types of APIs, Private APIS, Partner APIs, and Public APIs. These all come with their benefits and disadvantages.
Private APIs are also known as Internal Apis, and as the name implies these are primarily used internally within the companies using them. These APIs provide the greatest security during data exchanges out of the other types of APIs. They are also cost-friendly and efficient thanks to automation.
Partner APIs are banking APIs most commonly used in sharing data between banks and third-party companies. This type of API is also used with other kinds of business partners, such as providers and suppliers. This API provides:
- Efficient collaborations between business partners
- API Monetization
- Enhanced Security
- Reduced Costs
Most banks will use this kind of API to allow for more collaborations with business partners and efficiently transfer secure data between two points for things like loans.
Public APIs can be considered the option with the least amount of security, making them often the least used API in companies. However, this detriment doesn’t make it any less beneficial than the other AI Types. Public APIs make data public to third-party businesses and partners. Public API is used by external partners who want to create innovative products. Public APIs provide:
- Innovation from external sources
- Greater market reach, allowing access to new markets
- Developer community
A Future With API Banking
As technology continues to develop, consumers want new and efficient ways of accessing their finances. This is even more apparent with the pandemic, as most people want a more safe way of using their money. Many companies have already adapted, creating apps and websites where you can make purchases and manage your finances. More Fintech companies will continue to also rise, such as Co.tribute and Future Fintech. And from these companies, you will see innovations and more growth in technology.
One of these innovations is the implementation of Open Banking, which is becoming more relevant and widely used. Open banking APIs share consumer banking and financial data with third parties(ex: fintech companies). This works very similarly to most APIs. However, it makes the data universally available. Innovators being able to access tons of data will improve their APIs and increase the rate of innovation in technology.
API integrated into banks has led to a revolution in the way banks and third-party entities interact. There will continue to be a digital transformation in banking as we head into the future. Keeping up with the latest technologies and banking APIs will be vital to develop a business.
Financial technology will keep growing and developing, so it’s critical to jump on the train of technological innovation as soon as possible.