Application programming interfaces (APIs) have already changed the way financial institutions operate technologically and will continue to influence the evolution of the financial services industry. APIs enable the integration of an increasing array of internal and external banking systems, applications, data, strategies and activities.

The development and increasing importance of digital banking to consumers, financial institutions and financial technology suppliers revolves around the emergence of open banking and even more broadly, open finance systems — strongly supported by APIs.

What are APIs in Banking?

APIs enable software to connect and perform a series of tasks. API banking technology allows financial institutions to digitize their services and enables fintechs and financial institutions to collaborate. For banks and credit unions, these benefits make it easier to deliver a better digital experience to greater range of customers. Meanwhile, fintechs linking with financial institutions are able to back their services with government-insured banking infrastructure.

Banking APIs also allow banks and fintechs alike to embed their services in non-financial apps. Among the banking areas helped by the accessibility of APIs are payment processing, peer-to-peer programs, investment management, compliance/regulations, and payment transactions.

In addition, fintech-enabled APIs supply credit history for loan applications, provide real-time assessments of spending habits and payment card use, authorize and enable transactions, provide access to checking account information, or supply the channel to make online purchases.

API Banking Objectives

A recent global survey on APIs in banking from McKinsey revealed that 88% of respondents believe APIs have become more important over the past two years. Customers want tools, products and services that engage and simplify their financial lives.

In addition, Cornerstone Advisors found many financial institutions turning to third-party providers because they lack confidence in their core vendor’s approach to APIs for integration. Just 23% of bank and credit union executives are “very confident” in their core vendor’s approach to APIs, and a little more than 40% are “somewhat confident”—not a particularly strong endorsement.

Cornerstone proposed developing an API strategy that necessitates financial institutions have: (1) a business plan that clearly defines the differentiated experiences and products the organization offers, and (2) an ongoing focus on the APIs that enable them to connect to their ecosystems to deliver on their differentiated experiences and products.

Many banking leaders hope to differentiate themselves using APIs as part of an innovative financial technology approach according to McKinsey. These encompass:

  • An API strategy. Financial institutions aim to cover monetization and enablement of new businesses through third parties and collaborations. In this tactic, IT and the financial institution advance an extensive road map for internal and external APIs.
  • Operating model. This echoes a united—rather than a siloed—method to deliver its strategy while also maintaining ownership of each API along its entire life cycle.
  • Technology. McKinsey noted several financial institutions succeeded by starting small with a few internal APIs and then scaling from there.
  • People. McKinsey highlighted a UK bank’s gamification use to increase adoption of APIs and develop technical capabilities. This approach allowed the bank to nurture an API-first culture.


Setting Up Banking APIs

Financial institutions today have customers’ consent to provide third-party providers access to personal financial information, allowing for the development of apps and programs that make consumers’ financial lives more efficient.

At an “APIs in Banking” roundtable hosted by McKinsey, participants from more than a dozen global banks and smaller regional institutions exchanged updates on their plans for using APIs and their progress to date. The forum found most financial institutions still relying heavily on complex legacy systems. Consequently, leveraging APIs to tap into the functionality and data embedded in them can be demanding at best.

Nevertheless, financial institutions increasingly view APIs as adaptable tools that can enable business value. That is why API usage increased for fintechs with the upsurge of open banking, whereby financial institutions allow third-party developers to access data stored by financial institutions to deliver enhanced services and functionality.

With their growing significance, developers need a place to shop for APIs such as portals, which were the primary source of APIs for a quite a few years but usually offered placement for a single API provider. Portals have gradually given way to API marketplaces, which provides developers with a one-stop shop for everything from integrated onboarding to features such as security issue tracing.

NXTsoft’s OmniConnect Platform, which utilizes cutting-edge cloud technology to securely connect fintech solutions to financial institutions, ensures that its clients have safe and reliable integration, and is an open banking marketplace for all API needs. NXTsoft has connectors built for as many as 40 different banking cores, including systems from Fiserv, Jack Henry, and FIS, with many of them requiring connectivity to multi-core versions.