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What Are APIs and How Are They Shaping the Banking and Financial Sector?

Note: This post has been guest authored by Briana, who is a writer and marketing researcher based in Manila, Philippines. She spends a lot of time studying how technology continues to transform lifestyles and communities. Outside the office, she keeps herself busy by staying up-to-date with the latest fashion trends and reading about the newest gadgets out on the market.

API or application programming interface seems to be a buzzword that you have likely been hearing a lot of as of late. What is it exactly and why is it so popular? To put it simply, API is simply a process that allows different software systems to directly communicate with each other. It is through APIs that different apps and websites are enabling data to be shared and processed in real-time. The connection and communication between these systems can also be constant and continuous.

You have likely used an API without even knowing it as many apps rely on this technology to maintain their functionality and provide a user-friendly experience. For example, if you need to get somewhere by booking an Uber ride, the app smoothly integrates Google Maps, Waze, PayPal, and other payment channels to track your location, aid the driver in navigation, and allow you to do the cashless payment. All these processes are possible because of APIs, and the application of APIs is wide and far-reaching.

How APIs Are Breaking New Ground

Our world is constantly evolving towards a digitized and integrated sphere where technology is transforming entire industries. The banking and financial sectors are no different as electronic methods are slowly becoming the norm across many banks and financial institutions. With the introduction of online banking, people have experienced a level of convenience that was previously non-existent with many banks. Other banks have started opting to be API-driven, enlisting the help of companies like Stoplight to help them execute it.

How many of us have groaned at the idea of waiting in queues for something as simple as a cash deposit, going to banks the minute they open to avoid long lines or delaying certain transactions because the banks were closed? While online banking has eliminated a large amount of the hassle involved with doing in-person transactions, some individuals and businesses require an even faster and seamless experience. This is where APIs come in.

Online banking can still have limitations as some transactions may require your physical presence at a bank to be verified, a banking API can eliminate that hurdle by verifying your identity via security checks like a fingerprint scanner or a user login screen. Just like with many websites and apps, there is a greater demand for real-time banking that is accessible. With APIs, it is easier for consumers to use their banking apps to make payments, receive money, keep track of their finances, and simply do more no matter what time it is or where there are. The integration of APIs makes all these possible, giving consumers more choices when it comes to banking.

However, the use of APIs goes beyond making banking more flexible for people. It is also changing how banking is being done with the rise of open banks and digital-only banks.

The Future of Banking

While many traditional banks have rolled out their own apps for easier and more convenient banking, some banks have taken a step further by operating on an exclusively digital scale. The growing popularity of digital-only banks is one of the biggest examples of how APIs are truly shaping the banking industry. The idea of a bank operating without a physical building used to sound ludicrous, but that is no longer the case.

The seamless integration and constant communication between different programs have made digital-only banks a possible and successful business model. Additionally, more digital-only banks continue to pop up around the world. APIs have made it possible for smaller and newer banks to offer a wide range of services that used to be exclusive to big-name banks. For example, smaller banks can work with fintech institutions that can supply the technology that they need for specialized services. This can help them rapidly improve their marketing strategy and customer service.

Open banking is another process that is changing how banking and finances are being handled, and the hype is well-deserved. The use of APIs to facilitate a more diverse banking experience is slowly making the banking and financial sectors more digitized as time goes on. Open banking allows banks to continue providing banking services while giving users greater flexibility to use the money in their account on other platforms that their bank cannot allow them to do by itself.

The openness in open banking comes from the use of open APIs to facilitate these processes. It can be seen with the switch of ATM cards to EMV chips to allow faster transactions over a wider range of networks and how you can input your card data into many websites and apps during checkout for easy payment. Your bank will let you open and maintain an account with them, but the use of the APIs allows you to do more with your money.

The Issue of Security and Regulation

The biggest criticism towards the integration of APIs into banking and finance is the bigger threat of security breaches and the lack of regularization. Since APIs rely on connecting to and sharing information across different third-party apps, your data is shared and stored across these platforms as well. There is a huge need to standardize and regulate how APIs are designed and developed by people in order to keep transactions secure and uphold vital information as confidential.

Fortunately, there are groups coming together around the world to ensure that standardization, as well as integration, is being facilitated in the API space. Large companies, software developers, lawyers, and other relevant parties are working together to create and enforce standards while finding holistic solutions. After all, regulating APIs is about overcoming technological, business, and ethical challenges that require input from varying perspectives.

APIs are not inherently evil and can be used for the common good. As seen by how much better peoples’ banking experiences are now. It is up to the individuals and businesses involved to ensure that APIs are being created following a set of standards and that developers and users are complying with these regularizations. This way, any bank can benefit from integration while maintaining the public’s trust in them.

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