Posted by A decade ago RBI introduced NEFT and RTGS, followed by NPCI introducing IMPS. And this was the start of digital or online banking – a paradigm shift in the way services were offered to the end consumer. The next stage of evolution was from internet banking to API led banking.
The dawn of API in banking has resulted in significant changes concerning how financial operations are carried out. Although APIs have been widely used for over a decade, their use has recently become prevalent in financial services.
Understanding API banking
API (Application Programming Interface) traditionally pertains to the tech interface between software programs. This interfacing ability facilitates third-party applications to synchronise and connect to a bank’s tools and services.
API banking refers to a set of protocols that makes a bank’s services available to other third-party companies via APIs. This helps both banks and third-party companies augment their complementary specialities and offerings more than they can provide to their customers by themselves.
How API banking works
Over the last few years, APIs have become particularly significant to banks and fintech companies. APIs provide better means to share data, integrate with systems, and personalise services, making financial services quick and efficient. The same applies to banking.
Banks grant secured access to their financial services to third-party platforms, helping companies build products around banking services. Essentially, the core of the banking operation remains the same, but the experience is heightened.
Let’s consider an example where the bank is ICICI, and the third-party company fintech is XYZ
- ICICI bank allows XYZ to access its banking services, making transfers, balance query, and other functions available
- Next, the integration of ICICI’s APIs with XYZ products takes place
- Finally, XYZ makes API calls and fetches the necessary services from ICICI bank to further execute banking operations
Benefits of API banking and how is it causing a revolution?
- With API banking, innovators have more flexibility to provide the best features and services to streamline financial services.
- Have reduced many administrative hurdles with regard to managing customers own finances like applying for a business loan, checking your creditworthiness and many more
- Have a single view of customers all finances while being able to control, track, and analyse all financial movements, all in one place
- API banking has led to lowering the costs in a way that it is now more economical to serve the underserved and unbanked and offer products and services better suited to their needs.
- Today fintech companies are using API banking to retrieve account balances in real-time, processing transactions at high speed round the clock,
- API banking provide enhanced information for reconciliation in real-time, process vendor and dealer finance transactions real-time thereby facilitating faster churn in the ecosystem
The most important fallout of API banking’s data analytics lies at the heart of the banking API revolution. Banks can now collect substantial quantities of data relating to customer behaviour, which should, in turn, enable them to create more tailored product, services and specific marketing initiatives.
Today, banks are convinced that in order to grow and extend the banking solutions beyond their own banking channels and technology. And in order to achieve larger adoption of their financial services they need a strong partnership with fintech companies through API banking, so thereby API banking is truly creating a banking revolution.
(This article is written by S Anand, CEO and Co-Founder of PaySprint. The views expressed in this article are of the author.)