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What Are Banking APIs and Their Benefits? 

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The internet has completely revolutionized the way businesses operate. From sales to customer support and marketing to delivery, all aspects of businesses depend on the Internet these days. For example, customers that depended only on the Spectrum 866 number to get assistance with Spectrum internet cost, are now interacting with agents via live chat. Similarly, customers that visited the banks for depositing checks, cash withdrawals, and fund transfers are now using digital banking apps to perform all these functions.

What Are APIs?

The ecosystems across various industries have become fast-paced and highly volatile. There has been a drastic change in borrowing behavior especially post-pandemic. It is now frequent practice for customers to borrow for daily groceries, utilities, as well as apparel. Like olden times, credit is no more restricted to expensive purchases.

Lending has also undergone a shift and financial institutions are busy meeting increasing customer demands. Due to all the above reasons, application programming interfaces or APIs have become mandatory for the lending network to create and deliver better and immediate solutions to customers. They serve as facilitators to offer personalized solutions while generating heaps of user-generated data for businesses to decipher.

By enabling them to communicate and share data, APIs are like the bridge between two applications. The main purpose of these APIs is to make the banking process simple, convenient, and seamless for users. Moreover, using these APIs, 3rd-party companies (fintech) can use the shared information for innovation of their services and enhance the overall customer experience.

For instance, a banking API can help develop a mobile app for banking for customers allowing them several banking services accessible through their device like checking their account balance, online funds transfer, depositing checks, bill payments,  and many others.

API in Banking

APIs have solved common banking problems like failed payments, inefficient international payments, canceling payments on short notice, and more. Banks use them for improved reach, speed, and domains, so operations can become efficient. For instance, a bank can create an app that lets users access their account details, find ATM locations, discover branch hours, etc. To optimize this app, banks require an API to connect with a third party. This allows the bank to provide more features to users, like credit score information, mortgage updates, and much more.

How Do APIs Work?

Banks and fintech businesses use APIs to share services and data. To understand better, here are the three simple steps.

  • The fintech business connects to a financial institution for user information they require and pay the fee to access it.
  • The financial institution opens an API for these companies to grant access to both sensitive and non-sensitive user data.
  • The fintech companies then use this data to enhance their application process, increase the customer base and provide innovative and useful services.

APIs enable companies and banks to come on the same page and understand each other’s programming languages,  operations, and several other technical features and aspects. It allows safe data sharing between both parties while maintaining financial security a top priority.

Benefits of API in the Banking Industry

Let us explore some benefits of APIs to the banking industry. 

Data Sharing 

Banks are overly sensitive to their user’s account information and are a lot more conscious when sharing this data with third parties. With digital banking?APIs, users get complete control over their data. They can demand banks to share their data with their desired third-party provider as needed.

Quick and Effective Operations 

APIs allow banks to serve customers with quick and efficient solutions. They let them manage banking transactions through their smartphones, online, or wallet services across the devices. This eliminates the need to visit banks for almost all transactions.

Authentication and Authorization 

Through APIs, third-party apps can authenticate and authorize payments so they can be approved by banks. Credentials are sent to a server in an encrypted or plaintext form using an authentication protocol to determine if the connection attempt is valid or not. Once this is successful, authorization takes place. It is the process to verify that customers are who they say they are. In simpler words, authentication is important in security and validation whereas authorization permits to access the resources.