By Satyajit Kanekar, Co-founder and CEO, Mobileware Technologies
The new emerging banking industry is the first to adopt and benefit from modern technologies. The two biggest reasons why top banks from across the world, including India, are devouring the latest technologies faster than ever are to meet the changing needs of the consumers and battle competition. The API banking technology facilitates banks to digitize their services and enables fintech and banks to work together. It provides new ways of distributing software & data by combining the functionality of one application with another.
Today, banks are convinced that to extend their banking solutions and achieve true financial inclusion beyond their channels they need a strong API-based partnership with Fintech. It allows consumers and businesses easy access to custom banking services while ensuring complete safety with enhanced efficiency. Therefore, all the necessary information is transferred with the help of API banking. It is a crucial aspect of the banking industry as financial firms continue to associate with third parties. Let us look at what API banking is and how it works.
What is API Banking
The API traditionally pertains to the tech interface between software programs. In simple terms, this interfacing ability facilitates a third-party application that synchronizes and connects to a bank’s tools and services. This helps both banks and Fintech to reinforce their complementary specialities and offerings beyond their limits to customers themselves.
APIs also play a crucial role in the Banking as a Service (BaaS) industry. BaaS — sometimes called Banking as a Platform (BaaP) or Banking Software as a Service (banking SaaS) — refers to services that empower banks to provide digital services to customers such as online banking and mobile banking.
When banks use an API from a trusted provider, they can offer customers a premium digital experience that would otherwise require greater overall investment to build in-house. Banks can also use APIs to link their services to fintech apps, enabling new customers to open debit, credit, or savings accounts from within those apps. BaaS providers who offer API banking can help banks build lasting relationships with top trusted fintech companies.
As the adoption of API banking increases, new entrants such as neo-banks and challenger banks are estimated to rise in the coming years. They have already started developing a niche in India, and according to recent studies, their market size is expected to reach US$ 15,000 mn by FY27.
The benefits of API banking
The API banking allows banks to digitize their services and serve better customer experience with internet banking. Therefore digital banking enabled by internet banking APIs are becoming a lot more popular after the pandemic and this adaptation will bring a massive shift in the banking industry.
Similarly, fintech apps are also growing in popularity along with digital banking. As banks want to be connected with more fintechs, API banking providers can not only help with technical tools required for connecting with fintech, but also help find trusted companies that will offer real value. It can help in capturing deposit market share and increase transaction fee revenue.
Bank API integration with fintech is something that only a few banks are pursuing at this point. However, this number is growing, as major deals are getting announced and financial institutions (as well as investors) have started to realize the need to jump on this opportunity.
Rise of API Banking
Today, the use and development of APIs for banks have become a necessity. There’s huge pressure on banks to adopt API banking because of consumer preferences, market pressure, and the growing prevalence of open banking.
It helps customers apply for credit, and allows them to share their bank transaction data seamlessly excluding paperwork, scan data, and much more. Several major banks in India have already launched their API services, and many others are in the process of adopting the same.
APIs for net banking offer benefits in all segments which is why more and more financial institutions have started implementing them. Today businesses can experience the benefits of banking APIs that will help them gain a competitive edge in the market and better meet the needs of their customers.
Though many different Application Program Interface types are being launched by banks, consumer-facing API banking services are the only ones that are expected to get more popular in the banking industry, providing evolved services to customers in the future.