Application Programming Interfaces have been around for some time now. However, the area where they are arguably making the most impact is finance and more specifically, banking. Standalone API-driven business models have been able to become successful within the boundaries of an open banking market.
Some even call this new trend the API economy. In this article, however, we’re going to focus on bank API technology and how it is changing the entire banking sector and impacting the daily lives of pretty much everyone.
Why Are Bank APIs Relevant in the First Place?
You may be wondering as to why the Application programming interfaces are so crucial to the world of banking, to begin with… Well, the answer to that may be found in the introduction of single legislation.
Back in 2018, in the EU and EEA, a directive called PSD2 came into force, outlining a new standard for digital payment processing. In the PSD2, bank API technology was listed as instrumental and mandatory in order to create a more open, more competitive banking sector throughout Europe and to integrate the market, and bring different member states closer together.
Even though this exact technology was used for close to 30 years in the world of banking, it was only after PSD2’s introduction that a bank API became a must-have tool that adds value. What was considered only a purely technical and business-oriented solution now became a necessity in order to serve customers. This changed and drastically amplified its importance.
What Bank APIs Can Do and Their Use Today
After the implementation of PSD2, banks had an obligation to implement API use. Right now, they can be used for: Account information gathering, Payment Initiation, and relevant other relevant financial services.
The technology of application programming interface allows for multiple different software tools and computers to efficiently communicate. Hence, APIs are able to allow a fluent exchange of information between different financial institutions or service providers.
For the most part, modern use of APIs is focused on account-to-account transactions, referencing, or even account data sharing. Some APIs are able to offer smoother integration with the big banks for developers, making their service more accessible.
If you want to know the practical uses of bank API technology, here are a few
- Offering insights into your budgeting and money spending habits – many different APIs are able to collect relevant financial data (with the user’s consent) and analyze it to show insights into money management. Most of them utilize AI technology too.
- Simplifying payments – Instead of having to manually create payment orders, just link your bank account to the service provider via an API and authenticate payments much quicker
- Referencing – Tenant referencing is a very popular practice in some countries. Instead of going through hell trying to procure all necessary documents, get bank statements and reference data through APIs.
- Verification for creditworthiness – since APIs can collect and process your bank account info, they can verify your income and evaluate risks, associated with credit-related services. Loan companies can use APIs to auto-evaluate risks and grant or deny loans almost entirely automatically.
What Does the Future Hold?
When discussing technology, it’s always essential to cover not only the present but also what the future may hold for it. When forecasting bank API technology, it’s evident that Europe will become the global hub for open banking.
It seems that here, API technology will just be further integrated into the banking sphere. There is a huge possibility that further external integrations may be in the cards. For example, the pan-Nordic payment ecosystem should be rolled out in the coming years, uniting the countries of Norway, Denmark, and Sweden through the development of a unified banking system.
In terms of other future possibilities, there is a lot to talk about, all the way from paying salaried, client scoring, frictionless transactions, monetized loyalty programs as well as a more secure architecture for easy access to banking services.
So, functioning legislature, as well as the potential for innovation, allows bank API technology to slowly change the entire world of finance!