What is an API and how can banks and fintechs use them?

In the past years, the financial sector has been digitally transformed, we could say one of the most. In short terms, the emergence of open banking has led financial institutions to use the famous APIs. What for? To offer more services that were not offered before and to automate others. Here we tell you what they are and what they are for.

What is an API?

The meaning of API is Application Programming Interface, it is an interface that allows you to connect the database of a service with another application. It’s like a bridge that connects point A to point B and facilitates data traffic with total security.

It must be taken into account that there are different types of APIs, for example:

• Open APIs: they are publicly available and allow developers to implement them.
• Private APIs: only internal developers have access to them, which means that those who have developed the API have total control over what and how.

For example, there are many companies that use Google APIs to integrate into their products, such as Google Analytics or Google Maps, among others.

And how has the financial sector taken advantage of this tool? Well, it must be said that banks already have a long history of using APIs, but for internal use. With the advent of open banking regulations and the emergence of the famous fintechs, open financial APIs are playing a key and essential role in the digitization of the financial sector.

What is the relationship between the financial sector and APIs?

As previously highlighted, each API is tailored for a specific function. For instance, some APIs empower us to seamlessly integrate cashback programs from brands directly into banking applications. This strategic use of APIs enhances the functionality and user experience within the banking sector, bridging the gap between financial services and brand loyalty programs.

In conclusion, APIs (Application Programming Interfaces) serve as the technological conduits that enable seamless communication and collaboration between diverse systems. For banks and fintechs, APIs are invaluable tools, offering a versatile framework to integrate and enhance various functionalities. Whether facilitating swift data exchange, streamlining transaction enrichment, or integrating loyalty programs, APIs empower the financial sector to adapt, innovate, and deliver enhanced services to users.

The dynamic and interconnected landscape of modern finance relies on APIs as the driving force behind the synergy between traditional banking institutions and fintech disruptors, propelling the industry toward unprecedented levels of efficiency, innovation, and user satisfaction. As we navigate the future of finance, the strategic and adept use of APIs will continue to shape the evolving landscape, fostering collaboration and propelling the industry toward new frontiers of technological advancement.