API In Banking: The Guide to Bank APIs

Bank API is an integral part of most solutions that seek to provide fintech services. It acts as an intermediary between a third-party application and your software. Bank API normally enables seamless communication between different software components or systems, carrying coded information or data between them. 

I can wholeheartedly say that APIs are becoming increasingly present on the market. Nowadays, almost every developer utilizes them in their project, not to mention development agencies and software providers. For example, over 90% of developers utilize them, and APIs generate 83% of internet traffic. 

So, in this blog article, I would like to focus on the communication between third-party software solutions and the influence bank API as a solution can have on a non-banking business’ performance. I will also cover bank API meaning as a concept, as well as practical examples and benefits of bank API.

What Is Banking API?

For starters, let’s learn more about API meaning and this technology in general. An API is a bridge between the front-end, or simply “client-facing" software application or interface, designed to be directly accessed and used by end-users, and the back-end, where all underlying processes are run and the logic is stored. The interactions with an API and the part of the front-end providing access to it are designed with the user experience in mind since they represent the brand, services, or products to the customer. 

In the fintech space, web and mobile platforms are dominating. Usually, software solutions for both operate through integrated APIs. Let’s give this technology a concrete definition:

API is a collection of rules, protocols, and tools that allow distinct software solutions to communicate and perform a series of tasks.

Now, let’s get a bit deeper and unite the coherent API meaning within the banking sphere.

An example of a banking API provider is Solaris — a banking-as-a-service platform that has a full banking license. Its client — Samsung, which is not a financial institution and doesn’t have a banking license, still has a branded digital wallet and offers Samsung Pay functionality enabled through Solaris API integration in banking. 

How is it possible that the company without a license offers banking services via a company with a full banking license? The banking API integrated into the Samsung Wallet enables to:

1. Receive a customer request to open a bank account. The customer may not even know what bank provides the service. Still, as per Solaris API integration, the request will serve as a command to access a specific part of Solaris’s bank system and open the account.
2. Verify the request by checking the API key.
3. Commit data exchange by reading data from the bank or performing actions, such as opening a bank account in this example. 
4. Once the bank processes the request, the banking API sends a response indicating the success or failure of fulfilling the request back to the Samsung Wallet, which is shown to the customer. 

It’s important to understand that the back-end process of processing the request is done on the bank’s side. If the request is to open the account, the bank does this according to their procedure. Alternatively, if the customer wants to transfer funds, the bank’s system will execute this transaction.

So, getting back to the definition of banking API:

Banking API is software that allows users to access financial services within non-fintech software solutions and allows businesses, that are not financial institutions, to provide diverse financial services within their apps or platforms.

You can discover the mechanism of how banking API works from the below infographic:

Collaboration is essential. APIs are the glue that ties together the numerous and complicated ecosystems of software applications, platforms, and gadgets in the digital era. 

Should you need high-tech consulting and advice on using APIs in banking, don’t hesitate to contact DashDevs.

What’s the Difference Between Open Banking and Banking API?

In 2015, the European Parliament adopted the European Commission’s proposal—the Payment Services Directive (PSD2)—which regulates and democratizes access to banking data. It implies legal permission to give third parties access to bank account data held via APIs. That’s when the term “open banking,” which refers to this newly created system of open data exchange, was coined.  

Let’s review the open banking meaning: 

Open banking meaning is in the concept of sharing sensitive financial data and services with third parties using APIs. It’s also the regulator requirement by PSD2 that forces to disclose access to customer bank details. The shared data includes the account holder’s name, account type, currency, account open date, transaction details, etc.

Open banking has converted personal finance from reactive to proactive. Now, third parties can enhance the relevance of their suggested services by accessing the customer’s account information, which not only regulates the work of banking APIs but also can offer such services as

• Customized investment plans
• Price comparison features
• Savings notifications
• Budgeting tips

On the contrary, banking API, which, as described above, is a software solution providing a connection between a third-party application and a bank. 

Basically, open banking meaning is in the access to data and credentials. At the same time, a banking API is when a third party is allowed to create financial platforms and solutions and register bank accounts via the infrastructure and as per the license of the banking API provider. 

An example of a vivid open banking and API is Revolut, a global neobank. It holds a banking license for the EEA (European Economic Area). Yet, it doesn’t have a full banking UK license and, therefore, cannot take deposits from UK customers. Still, it has been offering e-money services such as currency exchange and transfers in the UK since 2015

As a startup, Revolut has the Revolut Bank backing it up. The latter holds a full banking license in Lithuania, allowing Revolut to offer cross-border banking services to customers in the EEA. 

Siri will use the intents of the iOS-based software, which will then make a request to middleware, which, in turn, will make a request to the banking API. The latter will tell the bank with the API to start the transaction processing right away.

So, open banking APIs, in the case of Revolut App, enable to:

1. Receive a customer request to access a specific part of Revolut Bank’s system and view an account balance.
2. Obtain customer consent for Revolut to access their external bank account information
3. Verify the request by checking the open API banking key
4. Commit data exchange by reading data from the bank.
5. Once the bank processes the request, open banking APIs can display information to the customer. 

In essence, when open banking APIs just allow for the access and the exchange of the user’s bank account information via the third-party app, the banking API enables opening a bank account at the request made via the third-party app. 

You can discover more about open banking development and integration in banking and request such services at the DashDevs’ corresponding page.

Banking and Financial Services in Numbers

Have you wondered how open banking and API open banking are boosting Fintech growth? While mobile banking has grown in popularity in recent years, branch visits and ATM usage have been progressively falling. According to FDIC data published by the ABA Banking Journal, 34% of middle- and upper-income people under the age of 54 used mobile banking as their main way to do banking in 2019, up from 6% in 2013.

Over the last few years, the banking niche has seen an immense amount of investments and capital pouring in. Several factors affect it, such as global regulatory change, but growth remains stable. In 2021, the number of successful API calls made by using banking APIs amounted to 795 million, and in 2023, it grew to more than 1.13 billion.

The general population is also eager to use fintech. According to eMarketer financial data, adoption of fintech services had gradually increased, rising from 16% in 2015 (when the first Business Index of Fintech Adoption study was conducted) to 33% in 2017 and 64% in 2019.

Banks are under fire not only from consumers but also from competitors. For example, Stripe announced the participation of Goldman Sachs, Citibank, and Barclays in its banking API initiative in connection with the launch of its new service, Stripe Treasury. This service offers customers advanced payments and issues small loans to merchants in conjunction with Stripe Capital. Stripe provides standardized API access to the global banking capabilities of its network of partner banks, which currently includes Goldman Sachs Bank USA and Evolve Bank & Trust in the US.

So, an API integration in banking is one way that other banks and smaller financial institutions are trying to catch up.

What Banking APIs Can Provide for Platforms and Applications

When creating an all-in-one platform, for example, for an e-commerce business, it’s expected that software can handle customer data and offer services in accordance with the industry’s best practices. It can be achieved, not in the last place, by ensuring effective communication through APIs in software systems. I define the major reasons for which bank API integration is important as the following:

1. Integration and interoperability: Software systems today are often built as a collection of microservices or modules, each responsible for a distinct function. APIs ensure these components can work together smoothly, making the whole system functional and coherent.
2. Scalability: APIs allow for the decoupling of services. When each service interacts through a well-defined API, individual services can be scaled (i.e., increased or decreased in capacity) based on demand without affecting the entire system.
3. Flexibility and adaptability: With APIs, systems can evolve over time without overhauling entire architectures. If a system component needs an update or replacement, it can be done without affecting others as long as the API contract remains consistent.
4. Innovation: APIs allow third-party developers to build upon existing platforms. For example, APIs make possible the vast ecosystem of apps on platforms like iOS and Android or plugins for various software solutions.
5. Data exchange and accessibility: APIs facilitate the flow of data between systems, allowing for real-time information access and sharing. This is crucial in sectors like finance, healthcare, and e-commerce, where timely and accurate data exchange is vital.
6. Automation: Tasks that used to require manual intervention can be automated through APIs, leading to efficiency and reduced human error.
7. Revenue streams: Businesses can monetize their APIs by offering valuable functionality to third-party developers or businesses. For instance, many cloud services offer APIs that developers can use in their applications, incurring charges based on usage.
8. Standardization: APIs provide a standard way for systems to interact, leading to consistency and predictability. This is especially important in sectors that have strict regulatory and compliance requirements.
9. Security: While exposing an API can introduce security concerns, a well-designed API also provides a controlled mechanism for accessing a system’s data and functionality. Instead of various access methods, the system can focus on securing a single, well-defined entry point.
10. Cost efficiency: APIs enable the reuse of services and components, reducing the cost of development. Instead of reinventing the wheel, developers can leverage existing services.

From a technical perspective, the importance of effective communication through APIs cannot be overstated. After all, given the complexity and interconnectedness of today’s digital solutions, the use of APIs to expand the scope of functionalities matters a lot. 

So, when building a fully-fledged platform or application, consider integrating banking APIs that will technologically benefit your software solution and, respectively, a business, as explained in the section below. 

It’s essential to understand that APIs are complex enough, and there’s a large variety of them. This complication powers up a variety of options where APIs can be of great usefulness. Here’s the list of modern-day APIs that differ from each other based on the form of their accessibility for businesses, developers, and users:

1. Public APIs (External APIs): These are available to developers and other users with minimal restrictions. They are intended for external users to view and access the company’s data. Examples include the Twitter API, Google Maps API, and the GitHub API.
2. Internal APIs (Private APIs): These are hidden from external users and are only exposed by internal systems. They are used within an organization to improve its products and services.
3. Partner APIs: Such APIs are intended to be exposed to strategic business partners. They are not available publicly and provide more functionality and access than publically available APIs.
4. Composite APIs: These allow developers to access several endpoints in one call, which might be a chain of different bank API calls. Composite APIs are especially useful in microservice architectures to build certain workflows and processes.

For modern businesses, using multiple APIs is no longer an option—it’s a necessity, as they significantly expand the functionality and scope of opportunities. 

You can discover additional information on types of banking APIs and their use cases from another blog post.

What’s the Usefulness of API For Banks and Fintech?

I can claim that APIs are a great tool for international organizations as they fully enable cross-border financial transactions. Moreover, the system simplifies scaling by allowing an unlimited number of customer data and payments to be processed from a single account number. This allows businesses to save time and money when processing mass payments. 

Now, let’s proceed with reviewing the concrete benefits of API open banking for financial institutions and the fintech sector in general:

Core Benefits of API Banking for Banks

The Onbe survey shows that 74% of consumers prefer digital payment methods to traditional ones. At the same time, according to the FDIC, in 2021, 14.9% of all unbanked households used bank teller machines to access their accounts. However, this number is decreasing because more people tend to check their bank accounts online or through their phones.

By digitizing services through API banking solutions, banks can better serve customers who live far from branches or prefer online banking. APIs for banks provide the following benefits:

• Seamless consumer experience
• Streamlines data transmission
• Aggregation of services
• Reduction of touchpoints and one-stop visit experience
• New partnership and revenue opportunities
• Accelerated time-to-market
• Innovative products

It’s safe to claim that it’s in the bank’s interest to establish connections with creative companies as per the open banking approach and with the help of bank API integration. This increases users’ satisfaction and transaction fee income and helps capture a larger share of the deposit market, resulting in increased revenue for the business providing such options.

Core Benefits of API Banking for Fintechs

McKinsey’s research reveals that 75% of the top 100 banks will have made public APIs available in 2022. As my partners and I noticed years ago, there is no room for offline work in fintech. Users now expect companies to provide them with convenient access to on-demand financial services as they order products or services. 

Since fintech startups usually don’t have banking licenses, they can’t offer financial services directly. So, to still be able to provide transaction processing, lending, etc., they integrate with financial institutions via their APIs. Companies can hardly create API solutions from scratch themselves as they are complex, resource-intensive, and time-consuming.

Lots of companies integrate with the help of data aggregators, i.e., providers that allow access to financial information like bank accounts, credit cards, loans, and investments of customers in one place. Data aggregators like Plaid provide their API to help organizations provide their customers with financial services.

So, it’s possible to determine the scope of the benefits of API banking for fintech companies as:

• New partnership and revenue opportunities
• Enhancement of regulatory compliance
• Possibility of cross-selling fintech goods and products with banking services and products
• Better customer experience
• Higher brand trust and customer loyalty

Check out what fintech solutions utilize APIs the most in the infographics below:

Case Study: Building a Challenger Bank Using APIs

As my experience shows, building a challenger bank requires a combination of developing proprietary systems (especially for unique value propositions) and leveraging third-party services to accelerate development, reduce costs, and ensure compliance. 

As such, DashDevs has to offer Fintech Core — a white-label modular fintech solution for the creation and fast launch of digital banking and payment products. It allows anyone to create a neobank from pre-built modules and integrations. Fintech core makes developing core banking and standard fintech modules themselves unnecessary, minimizing costs and reducing the time to launch. 

Unlike bank API integration, you still need a banking license to distribute financial services with the help of the Fintech Core. In essence, this non-cloud solution allows a financial institution to create a unique product that you can fully customize for your business needs.

Besides, here at DashDevs, we have built multiple neobanks from the ground up. Our success stories include the creation of Pi1 — a modular white-label banking platform. This branchless financial institution comes with a full range of banking services and products. 

So, we gladly share the basic combination of a typical challenger bank’s own and third-party APIs and bank account API. It’s needed, from our experience, to start the business in a technologically proper way:

Core Banking System (CBS)

Most challenger banks may not create this from scratch. Instead, they’ll utilize third-party core banking solutions that offer APIs. An example is fintech core banking software by DashDevs, which is a white-label solution for the fast launch of digital banking. The CBS handles account management, transaction processing, and other essential functions.

Customers Onboarding

Some of the applications of APIs for customer onboarding include:

• Identity verification: Challenger banks often integrate with third-party services that handle identity verification, using technologies like facial recognition, document scanning, and more.
• Anti-Money Laundering (AML) & Know Your Customer (KYC) checks: Third-party services often provide these crucial checks to ensure compliance with financial regulations.

Payment Infrastructure

APIs can serve as such elements of a payment infrastructure as:

• Payment gateways & processors: To handle electronic transactions, challenger banks often integrate with payment processors and gateways.
• International transfers: Services like TransferWise (now Wise) or CurrencyCloud might be used to facilitate international transactions.

Another blog post by DashDevs provides extensive details on payment gateway and processor solutions and explains their roles in payment processing.

Cards

Third-party services like Marqeta or Galileo can be leveraged to issue physical or virtual debit/credit cards and manage card-related functionalities. This way, they fulfill card issuance and management functions. 

Additional Financial Services

APIs can provide financial services like:

• Lending: Instead of building their own lending platforms, some challenger banks integrate with third-party lending platforms.
• Investment: For investment products, integration with platforms like Plaid can provide users access to investment opportunities.
• Insurance: Some neobanks offer insurance products via partnerships with insurtech companies.

Customer Engagement and Support

Here is how APIs may be used to fulfill the function of customer engagement and support:

• Chatbots & support: Challenger banks might integrate third-party AI-driven chatbots to handle customer queries and offer 24/7 support.
• Personal financial management: Banks can offer features like expense tracking, budgeting, and financial insights by leveraging third-party APIs or developing their own.

Security

To cover the requirements for the security of banking applications, APIs can assist with:

• Fraud detection: Integration with third-party services that offer real-time fraud detection can help identify suspicious activities.
• Multi-factor authentication: To enhance security, banks often implement MFA using third-party solutions or in-house developed mechanisms.

Data Analytics and Insights

Challenger banks may integrate with platforms that provide analytics, which can help them gain insights into customer behavior, optimize operations, and tailor their product offerings.

Internal Operations

Challenger banks might use established SaaS platforms and their APIs for internal operations like HR, finance, and more.

Conclusion

Bank API solutions are what a modern fintech business needs to enable any type of software solution to provide comprehensive fintech services through the application. 

Using API solutions might be helpful to those who are seeking freedom to enable their customers to utilize the services without creating a complex and multi-level solution that would encompass everything at once. APIs provide freedom and flexibility to integrate with those unique features that are required for your business specifically. 

For example, Fintech Core by DashDevs enables better customization for products that need to integrate with different banking APIs.

Are you ready to explore these vast opportunities? Let us assist you in creating top-notch fintech solutions!