Bank APIs are unleashing an unprecedented dynamic in the banking world. Financial institutions enable other market participants to access this data via banking APIs, giving consumers control over their data. But how exactly do bank APIs work?
In banking, an API provides financial institutions with data about customers, accounts, and transactions. As a result, users of payment services no longer rely exclusively on their own bank for payment services.
Using API banking, financial institutions can use third-party providers to expand their business. Consumer credit processing via comparison portals is a common example, in which an application allows the comparison portal to access information from their online banking account via a bank API. With that information, the comparison platform can conduct a credit check in real-time and approve the applicant within seconds of its finding.
Improved customer experience with Bank API
A customer’s main gain comes from not having to leave their transaction context to pursue banking services. Referring back to the comparison portal example: once a user has selected a consumer credit through the portal, all the remaining steps can be completed on the comparison portal itself.
By replacing the emailing of salary slips and bank statements, banking APIs now allow all parties to exchange documents in just a few seconds. The credit check is enabled by third-party providers who specialize in API banking and whose technology makes all data available in real-time.
As a third-party provider, the comparison portal bundles all of the relevant customer data and transactions and triggers all the required processes at the back end with a banking API.
Banking APIs provide benefits to all stakeholders as follows:
- Customers: The API banking experience makes transactions more convenient since all transactions are completed in the context they are meant for and under one interface.
- Third-party providers in the e-commerce sector: Comparability portals, for example, can offer consumers a more comprehensive selection of products and services, such as real-time arranging of consumer credits.
- Third-party providers in the technology sector: API banking providers whose solutions provide interfaces to financial institutions to create a technological infrastructure.
- Banks: Through third-party platforms, financial institutions can expand the ecosystem for their payment services and reach new customers.
To Conclude
Bank APIs have profound implications for business models, structure and positioning of financial institutions and banks. Start-ups and Fintech companies now have the opportunity to participate in payment triggering and account information services that can influence further development.
Established financial institutions, meanwhile, can capitalize on what they do best and adapt to new customer groups and application scenarios through a refocusing of their backend business. Simply put, the customer is no longer required to visit the bank, but rather the bank can provide the customer with the required banking service via a bank API. Thus, one can say that bank APIs are likely to become commonplace.
