Open Banking couldn’t work without the vital use of Application Programming Interfaces (APIs). They play an integral role in the payment process and have helped change the landscape of payments for the future. In this article, we explain what Open Banking APIs are and how they work.
What are APIs?
APIs refer to the set of protocols and codes that enable secure and standardised communication between different financial institutions and third-party providers. They enable one type of software to connect and share information with another. For example, a customer could log into a website and have the option to log in via their Facebook account. The website is using Facebook’s API which tells them which user has logged in and what their information is. This connection can truly benefit customers as they don’t have to repeatedly share their information and the process is significantly more streamlined and convenient.
The Role Of APIs In Open Banking
Open Banking APIs provide a standardised way for banks to expose their data and services to external developers, allowing them to build applications and services that leverage customer banking information. These APIs typically enable access to a range of banking functionalities, such as account information, transaction history, payment initiation and funds transfer.
The main purpose of Open Banking APIs is to promote data sharing and collaboration among financial institutions, fintech companies and other third-party developers. By providing secure and controlled access to customer data, Open Banking APIs facilitate the development of innovative financial products and services, such as personal finance management apps, payment initiation services, lending platforms and more.
APIs And PSD2
Open Banking APIs often adhere to established standards and specifications, such as the Open Banking API Specifications in the UK or the Revised Payment Services Directive (PSD2) in the European Union. These standards ensure interoperability, security and regulatory compliance across different banks and third-party providers.
When PSD2 came into effect in 2018, banks within the European Economic Area, as well as the UK, were required to create APIs that opened up the availability of their customers’ data to authorised third parties securely. Without APIs, this information wouldn’t be openly available and therefore “open” banking would not exist – showing the important role APIs play.
Through APIs, permission can be granted to a regulated third-party to initiate a payment (PIS) or for them to retrieve the bank account and spending information (AIS).
The Growth Of APIs
Despite being a relatively new concept and something a lot of people are unaware of, even if they are using Open Banking, the growth of APIs is impressive. In January 2021, there were almost 708 million API calls (which works out to nearly 23 million a day) in the UK alone! In April 2022, there were almost 975 million API called which is 32.5 million a day. These statistics are clear – the adoption of Open Banking and APIs continues to grow at a startling rate as more and more users start to see the benefits it can bring.
Overall, Open Banking APIs empower customers with greater control over their financial data and foster a more competitive and dynamic landscape in the banking industry. Through APIs, authorised and regulated third parties can initiate payments or retrieve clients’ banking information in order to provide a wide range of beneficial services to help customers control their money.