APIs in Banking: Four Use Cases (And Why You Should Care)

It’s common for even seasoned banking professionals to be a little out of their depth when it comes to the APIs used in open banking systems. This is natural since the details of the topic are highly technical. But the technical details aren’t necessarily important. For non-technical personnel, the important question is not so much “how do APIs work?” Instead, it is “how much should our institution value a core system that takes advantage of APIs?”

The answer is “quite a lot.”

An “open” core banking system – one that makes use of APIs to connect different financial services systems and providers – allows an institution greater flexibility in their operations, throwing open the door to a world of new integrations, innovative technologies, greater efficiencies and better customer service. Open banking through APIs is rapidly spreading throughout the financial world, and customers are coming to expect – even demand – the features of an open system from their banks. Institutions that don’t take advantage of this technology risk losing out to the competition.

What is an API?

In essence, an API, or “application programming interface,” allows separate systems to communicate with one another when they otherwise couldn’t. Fintech research and advisory firm Celent compares the role of an API to that of a waiter in a restaurant. The customer and the chef are in separate rooms and don’t have any way to talk to one another. The waiter collects necessary information from the customer – their order – and delivers it to the chef, who then uses that information to produce the desired result – the customer’s meal.

The API also defines what information is shared between the two systems, communicating only what is necessary. The waiter will happily take orders from the customer to the chef but would politely decline if the customer asked to tell the chef about their day.

You use APIs every day and probably never think about them. Uber, for example, does not have its own maps software, despite this being an essential element of their platform. Rather, Uber automatically pulls data from Google Maps through an API, and provides that to its users and drivers. Google itself uses APIs in a similar fashion. Google can provide up-to-date weather forecasts in its search results, despite not operating its own weather stations, because of an API connection with a weather forecasting company.

What are Banking APIs?

Banking APIs operate the same as APIs in general but are specific to banking software, allowing separate applications and even financial institutions to share information.

APIs have existed since the beginning of computing but have become particularly important to banking software with the rise of REST APIs, which are fast, lightweight and reliable.

APIs are a particularly effective solution to a problem that has arisen for banks in recent years. Especially since the onset of the COVID-19 pandemic, customers have come to expect 24/7, real-time support across all banking channels. Allowing each of a bank’s systems to talk to one another efficiently ensures that customers are receiving up-to-date information and support no matter where or when they engage with the bank. Customers want a unified experience with as few roadblocks as possible, and APIs help to create that experience.

Uses for Banking APIs

APIs’ inherent flexibility make them suited to a diversity of uses in nearly any computing context. Naturally, the practical applications of banking APIs are just as many and varied. Let’s look at four of the most common and how APIs help banks modernize, optimize, and streamline their operations.

Banking APIs for Integration

Longstanding institutions may be running part or all their operations on legacy systems and code. While these systems may have met the institution’s business challenges at the time of their implementation, now they are often obsolete and difficult to integrate. For example, a bank’s outdated checking account system might not be able to communicate with its CRM or mobile app.

Newer technologies – that consumers increasingly expect – rarely integrate natively with legacy systems. Replacing these systems is costly and time-consuming and many institutions are hesitant to even risk tinkering with them at all.

APIs help legacy systems communicate with newer ones by serving as a reliable translator between them. This creates a bridge between new and old, extending the usable lifespan of existing systems, without having to alter the legacy code and risk errors in the process.

Banking APIs for Connectivity

Before the proliferation of APIs in banking, financial institutions could still connect to one another and share information on behalf of a customer. Patricia Hines (Head of Corporate Banking for Celent) uses the example of Quicken, which could pull information from a user’s bank by logging in as that user. There is a potential concern here: in this case, Quicken has access to all of the information that the user does, such as their full checking history. With digital privacy more important than ever, handing over the keys to one’s personal data is likely to give anyone pause.

As mentioned before, APIs don’t just allow systems to communicate. They also regulate what information can be shared. So, for example, an API connection between Quicken and the user’s bank might give Quicken access only to 30 days of checking history, rather than all of it.

With REST APIs being as fast and lightweight as they are, this information can also be pulled in real-time, ready at a moment’s notice. This isn’t just good for consumers, who expect quick service, but good for the institutions as well, allowing them faster access to information. This real-time connectivity is particularly useful for commercial customers, who often have many different accounts that need to communicate up-to-date information with one another.

APIs for Platform Banking

APIs enable banks to act as modular platforms through which non-bank businesses can offer financial services, seamlessly integrating tech between the two. The business can pick and choose from the bank’s services to offer to their customers, without needing their own banking license. The business also gains access to the bank’s regulatory expertise, helping them stay compliant.

Take a neobank like Chime, for example. Despite offering savings and checking services, Chime is not a bank, but rather a technology company that integrates its app with traditional banks (according to Chime’s website, The Bancorp Bank and Stride Bank). A slow, cumbersome integration between the consumer-facing app and the bank would naturally be unacceptable to the user, but the real-time connection that APIs offer make this kind of partnership viable.

Banking as a platform expands the reach of the bank to new customers, albeit somewhat indirectly, and gives the bank new ways to capitalize on the resources and infrastructure it already has with new revenue streams.

Banking APIs for Innovation

The ability for banks to easily integrate new technology on a modular basis opens a wealth of options for new products, services and behind-the-scenes efficiency promoting measures. With the fast and easy integration that APIs enable, banks can even play catch-up if they have lagged behind the competition in innovation.

If a bank wants to add a product or service to their offerings, they don’t have to go through the effort and expense of building it themselves. They may not even have the in-house resources or expertise to do so. APIs allow fintech companies to offer these products and services and seamlessly integrate them into the bank’s existing systems. The result is a marketplace of innovative and modular technology solutions on offer from a variety of providers, from which the bank can pick and choose what is right for their business.

If the bank does wish to build a new product or service themselves, APIs can help to make that process smoother as well. Seamless integration of new technology isn’t reserved for third-party vendors. The modularity of a system taking advantage of APIs allows the bank to have a standardized method for adding new tools they develop to their systems without drastically altering the underlying code, something many banks are naturally hesitant to do.

APIs can also make for greater internal efficiencies within existing workflows. Two systems within a bank might not communicate efficiently or at all, requiring substantial manual work for the bank’s employees.  An API can bridge that gap, reducing workload and improving efficiency all around. An API might also integrate a new automation tool on top of an existing system, freeing up employees’ time and reducing the risk of human error.

Take Advantage of the Potential of Banking APIs

Open banking through APIs is full of exciting potential for every bank. In today’s banking world, your core system should be positioned to take advantage of those possibilities, because the competition certainly is. You can’t afford to be left behind.

CSI’s core platform enables you to maximize the power of open banking and APIs to meet your business objectives and comes with an ever-growing library of pre-built APIs to help you customize your system to your needs. Learn more about our enterprise banking solutions with our interactive brochure.

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