API In Banking: Classification

The usage of Application Programming Interface (API) has become a cornerstone of digital transformation in the ever-changing financial services industry. Understanding their categories is critical for executives, company owners, and engineers to begin leveraging technology to improve their fintech or non-fintech organizations. 

In 2021, there were 795 million successful API calls performed utilizing banking APIs, which increased to more than 1.13 billion in 2023. Statistics indicate a positive tendency toward integrating and utilizing banking APIs.

In this post, you will find out about types of APIs in banking, learn how to choose an API for your product, and discover the technicalities associated with the integration of a chosen solution.

What Is API in Banking?

API in banking is a set of protocols and tools that enable communication between front-end and back-end software components or systems in the banking and financial services sector. 

Essentially, APIs act as an intermediary that allows different software programs to interact with each other. They typically serve the purpose of integrating banking services provided by financial institutions into apps, or platforms of third-parties that don’t have a banking license. 

For in-depth information on API in banking, the usefulness and benefits of banking APIs, and the step-by-step process of building a challenger bank, access the complete guide by DashDevs. 

What Are the Types of Bank APIs?

Since, as mentioned above, banking APIs are more of sets of tools and protocols connecting the front-end with back-end, there is a variety of them designed for various software architecture needs and purposes. Here’s the categorization of bank APIs based on their accessibility and the communication they enable between software components:

Types of Banks APIs Based on Accessibility

In the context of bank APIs and development, accessibility refers to how APIs are made accessible to both users and developers. Basically, this characteristics determines who can access and use the API, under what conditions, and with what level of authorization or restriction.

Here’s the list of types of banking APIs used to enable different forms of intercommunication between software components: 

#1 Open or Public APIs (External APIs)

Characteristics: Typically, these APIs are designed with simplicity and universal accessibility in mind. They often come with extensive documentation and community support.

Use cases: Public APIs are widely used to integrate third-party services and enable applications to communicate with each other over the Internet.

#2 Internal APIs (Private APIs)

Characteristics: These APIs are more focused on internal functionality, security, and optimization of organizational processes.

Use cases: They are crucial for streamlining workflows, automating internal processes, and enhancing communication between different departments within an organization.

#3 Partner APIs

Characteristics: These APIs offer a balance between accessibility and security, providing more controlled and regulated access than open APIs.

Use cases: They facilitate collaboration between businesses and are often used in B2B models for complex financial services like payment gateways, data sharing, and supply chain management.

#4 Composite APIs:

Characteristics: These fintech APIs are designed for performance and speed, reducing the number of calls and server load, which is essential in complex systems.

Use cases: They are particularly beneficial in service-oriented architectures where multiple services need to be orchestrated for a single task or in situations requiring real-time data updates.

Each of these API types serves distinct roles, catering to different needs ranging from public accessibility and partner collaboration to internal operational efficiency and composite service integration.

Types of Banks APIs Based on Communication

When categorizing bank APIs based on communication, the focus is on how the APIs interact and exchange data between different systems or platforms. This typically involves the type of communication protocol or method used for data transfer.

Here’s the list of communication technologies modern-day APIs can be based on:

#1 Representational State Transfer (REST) APIs

Characteristics: Grounded on standard HTTP methods, these APIs are simple, scalable, and stateless. They typically communicate using JSON or XML.

Use cases: Building mobile applications, creating web services, and developing social media interfaces, where rapid and efficient data exchange is crucial.

#2 Simple Object Access Protocol (SOAP) APIs

Characteristics: These APIs are based on the protocol for exchanging structured information in web service communication. Any SOAP fintech API relies heavily on XML and is more rigid in its standards than REST.

Use cases: Enterprise environments, particularly where high security is required, such as in banking and financial services, payment gateways, and identity management systems.

#3 GraphQL APIs

Characteristics: Developed by Facebook, GraphQL allows clients to request only the data they need and can get all they require in a single request with the help of specialized APIs.

Use cases: Content management systems, e-commerce sites, and data-driven applications where users need to manipulate and retrieve large amounts of data efficiently.

#4 gRPC

Characteristics: Developed by Google, gRPC is a high-performance, language-agnostic RPC framework.

Use cases: Microservices architectures for internal service-to-service communication, in mobile and web client-server applications for efficient and low-latency communication

#5 Open Data Protocol (OData)

Characteristics: OData is a standard protocol for building and consuming RESTful APIs.

Use cases: Business intelligence, analytics, and reporting applications where standard conventions for querying and updating data are beneficial.

#6 JSON-RPC and XML-RPC

Characteristics: These are Remote procedure call (RPC) protocols encoded in JSON or XML, respectively.

Use cases: Legacy systems integration, internal system communication, and situations where bandwidth and simplicity are more important than features.

#7 WebHooks

Characteristics: WebHooks are a way for applications to send real-time data to other applications as soon as it happens.

Use cases: Event-driven architectures and real-time data synchronization between applications. WebHooks are common in services that require instant updates

Global banking capabilities rely on communication technologies heavily, as business, in the first place, is about information and its handling. The listed protocols, standards, and APIs are intended to facilitate diverse and efficient data exchange.

Looking for high-tech consulting services? Reach out to DashDevs and let our expert advisors assist you.

DashDevs Experience with Banking API Integration: Pi-1 Case

Here at DashDevs, we have conducted numerous fintech integrations and delivered multiple end-to-end fintech software development projects for businesses across different industries. With over 13 years of experience in the market, we can help you enter the market with integration or an MVP as fast as within 1 month.

An example of how we work with banking APIs is the development of Pi-1, a modular white-label banking platform.

Challenge: We were requested to deliver a complete white-label banking solution within 9 months. The B2B2C platform had to combine EMI and MiFID II licenses and be integrated with 30+ vendors, enabling KYC, AML, transaction processing, and other functionalities.

Solution: The DashDevs team created an API banking platform with back office & progressive built-in analytics. Pi-1 can serve as a banking platform for end users, with card issuing, lending, cross-border payments, budgeting, and other features integrated. Moreover, it can be integrated into any other platform or app through a ready banking API to provide neobanking capabilities.

Results: Due to DashDevs contribution, our client raised £20 million in investments. Now, Pi-1 has more than 100,000 monthly users and generates £2 million in monthly revenue.

Explore Pi-1 success story

How to Choose the Right APIs for Your Product

Comparing APIs involves considering various factors based on their characteristics, usage, and overall fit for a given application or scenario. Here’s my structured approach to comparing different APIs:

Protocol & Architectural Style

APIs can be designed using different protocols and architectural styles, including REST, SOAP, GraphQL, and gRPC. Some considerations might be:

• Statelessness: REST is stateless, which can be both an advantage (scalability) and a limitation (overhead of data in each request). The first example that comes to mind is Twitter API which utilizes REST and relies on HTTPS methods to operate. 
• Flexibility: GraphQL allows clients to request specific data they need, potentially reducing over- or under-fetching of data. Tech-savvy specialists in IT are well familiar with GitHub, the API of which is exactly GraphQL. 
• Performance: gRPC, being based on HTTP/2 and using Protocol Buffers, can offer better performance compared to traditional REST over HTTP/1.1. Here it’s possible to mention Google’s Cloud API, which emphasizes high-performance interactions. 

Data Format

APIs might use different data formats like XML, JSON, Protocol Buffers, etc. Factors to consider include:

• Readability: JSON, like the one used in Google Maps, is more human-readable than XML, offered by older Microsoft fintech services or Protocol Buffers.
• Efficiency: Protocol Buffers are more compact and efficient than XML or JSON.

Documentation & Usability

A well-documented API can save developers a lot of time and reduce integration errors due to:

• Interactive documentation: Tools like Swagger for RESTful APIs or GraphiQL for GraphQL allow interactive exploration of the API. An example here is Stripe and the interactive infographics it provides.
• Clarity and completeness: Documentation should clearly explain endpoints, methods, request/response formats, and possible errors.

Security

Examine the security mechanisms in place:

• Authentication: It can be token-based, API keys, OAuth, etc. Facebook Graph API is known for using OAuth 2.0 in order to ensure secure access. 
• Authorization: It can include Role-based access, scopes, etc.
• Data privacy: Ensuring it is especially crucial if the API handles sensitive or personal data.

Rate Limits & Quotas

Many APIs impose limits on how often they can be called:

• Burst rate: Maximum requests in a short period (e.g., 100 requests/minute).
• Sustained rate: Allowed requests over a longer duration (e.g., 10,000 requests/day).

In need of professional providers of web development services? Entrust DashDevs with your best project!

Error Handling & Reliability

How the API responds to errors and its overall uptime and reliability:

• Service Level Agreement (SLA): Uptime guarantees and potential compensations for downtimes. As such. Amazon Web Services offers API gateways with an SLA guaranteeing 99.99% availability.
• Retry logic and idempotency: Mechanisms to ensure reliable delivery of requests.

Pricing

Especially for third-party APIs, choosing the right pricing model is essential. These include:

• Pay-per-use.
• Monthly/ annual subscriptions.
• Tiered pricing based on the volume of calls or features.

Community & Support:

The role of community and support can be crucial in matters of handling technical challenges. Here is how:

• Active community: An active community can be a valuable resource for troubleshooting and best practices.
• Official support: Response time, availability of support channels (email, chat, phone), and the presence of dedicated account managers.

Versioning

This is how the API handles changes and updates:

• Backward compatibility: Ensures that existing applications don’t break with new updates.
• Versioning API strategy: URI versioning, header versioning, etc.

Test Environment

This matter concerns whether the API provider offers a sandbox or test environment to give API calls a try without actual impact on real data. As such, PayPal provides a sandbox environment that allows developers to test their integration with PayPal’s APIs.

Scalability

When strategizing for scaling, it’s worth considering how the API handles increased loads according to the application’s needs. Here it’s possible to mention AWS API Gateway which offers auto-scaling features, automatically adjusting capacity in response to incoming application traffic.

When comparing APIs, the “best” API might differ based on the specific use case, business requirements, existing tech stack, and future considerations. My advice is to prioritize criteria based on what’s most important for the given context.

Banking API Integration

In the case a bank with API is provided by a fintech organization, a business still needs to have it seamlessly integrated into their digital infrastructure. It may be as easy as adding a few lines to a website’s code, or it may require assistance from software developers. 

Regardless of the complexity of the integration, there are still a number of aspects to handle on the business side. They are related to the performance of the integration and the data and request-handling approaches. 

Here’s a simplified list of some key technicalities associated with the bank API integration:

• Data encryption. Encrypting data transmissions helps to minimize the probability of data breach when the data is being shared or fetched.
• Endpoint configuration. Setting up API endpoints enables the setting up of various banking functions, such as retrieving account balances, transaction histories, or initiating payments.
• Rate limiting. Implementing measures to control the number of API requests in a specific time frame helps to prevent the system from being overwhelmed.
• Error handling. It’s worth creating mechanisms to manage and respond to discrepancies in data requests or transmissions to ensure error-free API work. 
• Consent management. Legislation obligates businesses to adopt systems to obtain, track, and manage customer consent for data sharing via the means of API banking.

The potential of API banking integration is vast. It can lead to a more inclusive, efficient, and customer-centric banking ecosystem that meets the evolving demands of the digital age. When the technical complexities are managed and streamlined, the usage of API banking becomes irreplaceable for a financial institution’s workflow and their customers’ satisfaction. 

Final Take

The usefulness of API in the bank industry makes businesses worldwide consider adopting it in their software solutions. In that regard, it’s essential to know modern-day types of APIs, the criteria for choosing among them for a particular digital product, and the technicalities associated with the integration. 

Creation and execution of the API strategy for integration requires extensive expertise and expertise in fintech and development. If you’re looking for a well-seasoned provider to handle the end-to-end project you’re keeping in mind, don’t hesitate to reach out to DashDevs. Let’s discuss opportunities!

Contact us