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The financial industry is evolving constantly. With the advancement of technology, new systems are being introduced and incorporated, which have changed the traditional ways of banking and business in general. This article looks at the role of banking APIs in helping businesses improve their operations and create better user experiences.
What is API?
Essentially, Application Programming Interface (API) refers to a set of functions and interactions between two or more applications that provide information to the users. Businesses use API technology to provide their users with a seamless transaction experience. The technology enables companies to connect to a bank’s services, and extend those services, especially payment processing, to the customers.
How does an API work?
APIs allow for better ways to share data between two different entities, which in turn improves business performance in a number of ways. When businesses can share and obtain more precise information about their customers and their actions, they can offer a better all round experience and inevitably grow their profits.
In the world of finance, banks can grant protected access to their services to the other businesses, which enables regulated third parties to build new applications which can interact with the back end of their technology.
Open Banking and APIs
Open Banking refers to new regulation which requires banks to open their APIs and enable regulated businesses to access the financial information of their customers and develop new products and services. Due to Open Banking initiatives becoming increasingly popular, consumers are benefiting from the increased competition between banks and fintechs with a focus on creating better user experiences.
Since Open Banking is becoming so popular, the businesses that do not take advantage of these new opportunities are likely to be left behind. The businesses that do adopt Open Banking strategies will have a significant competitive advantage against other players in the market.
What are the benefits of APIs in banking?
There are several benefits of APIs in banking.
- First of all, it provides the third parties with secure access to their banking services, which helps them build specialised products and services. By sharing customer data more easily, companies become more equipped and informed about customer preferences and can provide products and services accordingly. This can reduce their waste costs and increase profit margins.
- With Open Banking APIs, banks and fintechs are forced to compete against each other in terms of customer experience – creating a more even playing field. As well as competing, they can collaborate with the most best in class third parties, which can benefit the banks, the third parties, and the customers.
- By integrating more traditional services such as card processing, businesses are able to provide their customers with the convenience that they have come to expect. This way, companies are better equipped to maintain customer loyalty and satisfaction.
Due to the technological advancements happening at such a fast rate it can become difficult for small businesses to keep up with the trends and giant companies. Open bank APIs provide small businesses with the opportunity to improve their performance by improving customer experience.